Discriminatory pricing

The results regarding the retail price of the product, the quantity sold in each market, the consumer surplus (CS), the producer surplus (entrepreneur s profit) and the social surplus (the sum of the previous two surpluses) as a consequence of establishing either a single price or discriminatory prices are shown in Table 5.2 and Figure 5.1. 

If low participation by smaller bidders is a concern, non-competitive bids could be permitted. A bidder who submits a non-competitive bid is guaranteed to win the desired units in the auction. In a uniform-price auction, the price is simply the market clearing price, while under discriminatory pricing the non-competitive price is an average of the conventional winning bids. Bidders can therefore limit risk by submitting non-competitive bids, particularly in discriminatory auctions.29... 

Nevertheless, there is some evidence from securities auctions that uniform pricing raises more revenue and produces less concentrated allocations (e.g. Archibald and Malvey, 1998), and it was partly on the basis of this evidence that the US Treasury switched to a uniform-price format in 1998. Furthermore, the UK Department of Trade and Industry expressed a preference for uniform over discriminatory pricing in phase I NER auctions (DTI, 2005). 

A discriminatory price auction with non-competitive bids could also be used. 

There are two classes of Robinson-Patman violations (cf American Bar Association Antitmst Section (1992)). One is termed primary line price discrimination. An example is when manufacturer 1 claims that manufacturer 2 offered discriminatory prices to retailers. For this suit to succeed, manufacturer 1 must prove that it has been harmed and that competition has been injured. This generally entails proving that manufacturer 2 s prices are predatory and below-cost (most courts apply a marginal-cost test). This form of Robinson-Patman violation is not relevant with a single manufacturer. The second class is secondary line price discrimination. An example of this would be retailer 1 suing a manufecturer for giving a lower price to retailer 2. For this suit to succeed, retailer 1 must prove it has been harmed and competition has been injured. The latter can only occur when the retailers compete in the same market. 

Two variants of the sealed-bid auction are the discriminatory and uniform-price formats commonly used to issue government securities. The two formats differ in the payments that winning bidders must make. In a uniform-price auction, every winning bidder pays the market clearing price. In a discriminatory auction, every winning bidder pays its own bid for the units it wins. For example a bidder who bids for 20 permits at 30 each and a further 10 units at 20 each pays a total of 800 if all the bids are above the market clearing price.25... 

Because both formats are now well established, Member States and potential bidders would be - or could easily become - familiar with the rules of either auction. Using these familiar formats would also address concerns about auctions being untested or over-complicated. Both discriminatory and uniform-price formats would be feasible and low-cost for Member States.26... 

In summary, as long as entry by bidders is not artificially restricted, EU ETS auctions are likely to be very competitive and efficient. There are several possible auction formats, but the most likely candidates are the sealed-bid uniform-price and discriminatory auctions, used in sales of government securities. The limited evidence that we have slightly favours uniform pricing, especially as bidders appear to find uniform-price auctions more straightforward. If participation is a concern, then non-competitive bids may be used. 

If auctions are employed in phase II, Section 3 of this article provides some broad guidance on how this might occur. Sealed-bid auctions are likely to be appropriate, and both discriminatory and uniform-price payment rules are feasible. Auctions could be conducted at relatively frequent intervals (every 6 months or so) over the 2008-2012 commitment period. Market power is not expected to be a significant problem as long as Member States do not impose artificial restrictions on entry. 

This is not to say that alternatives should not be considered, or that either option is necessarily the preferred auction format for every Member State. However the low costs of such formats (e.g. compared with ascending bids) and the fact that Member States can draw on the experiences of securities markets suggest that discriminatory and uniform-price auctions should be thoroughly examined. 

Marketing and competitive pricing of chemical products fair trade agreements and discriminatory practices are also under Federal supervision (Robin-son-Patman Act). This includes mergers, tie-in sales, and other merchandising practices. 

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