Primary Line Price Discrimination

Price discrimination is when one company offers a second company better terms than they are offering to a third company, despite the similarity of the transactions. There are two kinds of price discrimination -- primary line price discrimination and secondary line price discrimination.

Price Discrimination

Price discrimination occurs when a company, usually one that has a dominant position in the market, applies dissimilar trading conditions to similar trade transactions, thereby placing the company that is charged the higher price at a competitive disadvantage.

Primary Line Discrimination

Primary line discrimination is when a company in a dominant position price discriminates to exclude a rival from participation in the market. Fidelity rebates and selective price cuts fall into this category.

Secondary Line Discrimination

Different from primary line discrimination is secondary line discrimination, which occurs when a company "downstream," i.e., situated later in the product delivery process, is offered better terms than other downstream firms, putting the latter at a competitive disadvantage. For example, the owner of an airport may offer better terms to domestic shippers than to foreign shippers.

References

• "Highbeam Business" Price discrimination and secondary-line competitive injury
• Konkurrensverket: The Pros and Cons of Price Discrimination