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Price discrimination in input markets

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  • Roman Inderst
  • Tommaso Valletti

Abstract

We analyze the short- and long-run implications of third-degree price discrimination in input markets. In contrast to the extant literature, which typically assumes that the supplier is an unconstrained monopolist, in our model input prices are constrained by the threat of demand-side substitution. In our model, the more efficient buyer receives a discount. A ban on price discrimination thus benefits smaller but hurts more efficient, larger firms. It also stifles incentives to invest and innovate. With linear demand, a ban on price discrimination benefits consumers in the short run but reduces consumer surplus in the long run, which is once again the opposite of what is found without the threat of demand-side substitution. Copyright (c) 2009, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 40 (2009)
Issue (Month): 1 ()
Pages: 1-19

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Handle: RePEc:bla:randje:v:40:y:2009:i:1:p:1-19

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  1. Patrick de Graba, 1996. "Most-Favored-Customer Clauses and Multilateral Contracting: When Nondiscrimination Implies Uniformity," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 5(4), pages 565-579, December.
  2. O'Brien, Daniel P & Shaffer, Greg, 1994. "The Welfare Effects of Forbidding Discriminatory Discounts: A Secondary Line Analysis of Robinson-Patman," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 10(2), pages 296-318, October.
  3. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026272040x, December.
  4. Emmanuel Petrakis & Chrysovalantou Miliou & Nikos Vettas, 2009. "(In)efficient trading forms in competing vertical chains," Working Papers, University of Crete, Department of Economics 0916, University of Crete, Department of Economics.
  5. AMIR, Rabah & EVSTIGNEEV, Igor & WOODERS, John, 2001. "Noncooperative versus cooperative R&D with endogenous spillover rates," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn.
  7. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 210-30, March.
  8. Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 240-246, March.
  9. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 154-67, March.
  10. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1246-53, December.
  11. Patrick J. DeGraba, 1987. "The Effects of Price Restrictions on Competition Between National and Local Firms," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 333-347, Autumn.
  12. Michael L. Katz, 1986. "An Analysis of Cooperative Research and Development," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 527-543, Winter.
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