Question

1. The Clayton Act (1914) prohibits sellers of goods from discriminating in the prices charged different customers "when the effect was to substantially lessen competition." The Robinson- Patman Act (1936) makes it illegal for a seller to discriminate in price between different purchasers of the same commodity. Manufacturers often commit contractually to best-price provisions (also termed most-favored-nation clauses) with their distributors, stating that any price discount to one distributor will be offered to all other distributors. Conventional undergraduate textbook economics argues that perfect price discrimination by a monopolist is socially efficient. Conventional textbook wisdom embraces price discrimination while the law and industrial contracting seek to eliminate it. Carefully explain why price discrimination is inefficient within the context of the intertemporal bilateral monopoly model.

Answer 1

Intertemporal price discrimination is a pricing strategy of third degree price discrimination.A bilateral monopoly is a market structure which consist of monopoly a single seller and monopsony a single buyer.In bilateral monopoly the market power of the seller is counteractioned by the market power of the buyer.The aim of intertemporal price discrimination is to divide the consumers into high demand and low demand categories and thus charging a high price in the beginning and later a low price.Although efficient in the short run , such discrimination is not efficient in the long run.The one supplier will exercise his monopoly power and charge high prices from one seller.The only buyer will try to pay as much low price as possible.So price discrimination becomes inefficient.