I. Economic Arguments favoring price discrimination and/or relatively tolerant attitude toward price discrimination by regulatory/antitrust authorities:

1. If inter-unit, and under more restrictive conditions if interpersonal, price discrimination

often increases output relative to that of a single price monopoly or market power case.

2. When sporadic and done by non-dominant firms, price discrimination often plays a role in the break-up of collusive agreements by allowing selective price discounts that are more difficult to detect. See also Salop.

3. Where MC<AC, price discrimination can be used to generate "intra-marginal" revenues sufficient to allow prices to be set closer to marginal costs and thus increase output.

Often a justification in regulated industries for the use of various forms of price discrimination. In extreme cases, may actually allow an industry to exist where otherwise relatively low demand would not allow sufficient revenues in single price case, thus preserving some consumer surplus where otherwise output, and such surplus, would be z zero.

4. Price discrimination frequently occurs as part of the usual adjustment of competitive industries moving from one equilibrium position to another, especially when information is costly and some disequilibrium transactions are inevitable.

II. Economic Arguments opposing price discrimination and/or advocating a more vigilant attitude toward such pricing by public policy makers:

1. In cases in which price discrimination does not increase output (classic third degree interpersonal, not inter-unit cases, especially where demand curves are linear and demand differences are not "too" great among definable consumer groups), the effect is simply to magnify the dead-weight welfare loss of monopoly due to the Pareto inefficient distribution of products among consumer groups, yielding differing marginal values among consumer groups that would be arbitraged away were there no limitations of resales.

2. Furthermore, the increased profitability of price discrimination can lead to additional "investments" in monopolizing activity, since gaining and retaining market power is more profitable where such price discrimination is feasible. This may also further stabilize collusion in industries where price discrimination is feasible since the gap between shared collusive profits and competitive profits will be greater.

3. "Primary line" damage, i.e. damage at the industry level of the price discriminating firm(s), if price discrimination is a necessary corollary to predatory strategies.

4. "Secondary line" damage, i.e. competitive damage at the industry level of the buyers,

where it is plausible (perhaps in limited cases) that distributor buyers are driven out of

business or entry barriers are raised by the additional risks associated with "exploitative pricing" not related to cost justifications. Note that to some extent, (1) in II above is a secondary line argument where the buyers are the final consumers. But in that case, it is not "damage to competition" (as in a Robinson-Patman case), but inefficiency from the mal-distribution of product quantities among different consumers.