In contrast to competition authorities in developed countries, Russian competition authority often applies price cap on domestic wholesale price for large exporting companies. Competition authority issues remedies under merger approval or as a part of infringement decisions. Until recently, remedies are considered almost exclusively as a sign of intention of Federal Antitrust Service, Russian Federation, to expand the influence on markets and to restore price regulation. In this context price remedies never have any positive effects.
We suggest an alternative explanation. Large exporters of raw materials that obtain monopoly power due to mergers or protectionist policies exercise third-degree price discrimination. Prices for domestic customers, that are higher than export prices, decrease social welfare within the country. Price remedy is one of the ways to prevent price discrimination, together with import liberalization and sanctions for excessive prices.
We analyze the impact of incremental market power due to mergers or protectionist trade policies as well as compensatory measures applied by Federal Antitrust Service, Russian Federation, on the markets of metals. As methods for empirical estimations financial event study and difference-in-differences method are applied. None of the instruments – including price remedies, antitrust investigations, the reduction of import tariffs – shows a clear advantage over others. With a reasonable degree of confidence we can only say that the lack of compensatory measures would be accompanied by higher prices in the domestic markets, up to several dozen percent.