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There is a result in microeconomics that if you ban price discrimination from a previously discriminating firm, there was a always an alternative policy (specif
by oli5679 10y ago
There is a result in microeconomics that if you ban price discrimination from a previously discriminating firm, there was a always an alternative policy (specifying a maximum profit margin the firm can achieve but placing no restrictions on price discriminations) that would have lead to strictly greater welfare gains.
http://www.sciencedirect.com/science/article/pii/S0165176597001900 http://www.sciencedirect.com/science/article/pii/S0165176597...
This is ignoring competitive and redistributive effects, but the competitive implications should be positive (higher profits encourage competition) and this tool is sufficiently blunt for it to be unlikely to be the optimal feasible redistributive mechanism.
- makomk 10y agoIt is, of course, rather difficult to cap the profit margin of a company in the real world, both for political reasons and due to the difficulty of actually defining profit.
- oli5679 10y agoYou can just use the gross margin accounting definition, this isn't too difficult and firms should be roughly compliant. Also, firm profits should be higher than if you ban price-discrimination, so I don't see where the political resistance would come from? There are issues with: 1) Estimating the demand system and so picking the optimal gross margin. However, banning price discrimination is also relatively blunt and leads to a somewhat arbitrary outcomes from a welfare perspective. 2) Effects on firm incentives to reduce costs. If a firm knows that it will be subject to maximum gross margin restrictions in the future, it will have a weaker incentive to innovate possibly?