A regulated firm's incentive to discriminate: A reevaluation and extension of Weisman's result

This note reexamines the incentive of a regulated monopolist with an unregulated, vertically-related affiliate to discriminate against rivals of the affiliate. Taking Weisman's (1995) model as a framework, I show that his analysis understates the incentive to discriminate. My analysis shows that the incentive to discriminate exists more generally than his analysis suggests, and that the size of the incentive depends in an intuitive way on factors such as the stringency of regulation, the cost of discriminating, and the degree of substitution between the products of the affiliate and its rival.