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Partial price discrimination by an upstream monopolist

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  • Lluís Bru

    ()

  • Ramon Faulí-Oller

    ()

  • Joel Sandonís

    ()

Abstract

We analyze third degree price discrimination by an upstream monopolistto a continuum of heterogeneous downstream firms. The novelty of ourapproach is to recognize that customizing prices may be costly, whichintroduces an interesting trade-off. As a consequence, partial pricediscrimination arises in equilibrium. In particular, we show that inefficientdownstream firms receive personalized prices whereas efficient firms arecharged a uniform price. The extreme cases of complete price discriminationand uniform price arise in our setting as particular cases, depending on the costof customizing prices.

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Bibliographic Info

Article provided by Spanish Economic Association in its journal SERIEs.

Volume (Year): 2 (2011)
Issue (Month): 2 (June)
Pages: 217-231

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Handle: RePEc:spr:series:v:2:y:2011:i:2:p:217-231

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Related research

Keywords: Price discrimination; Input markets; D4; L11; L12;

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References

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  1. Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization, EconWPA 0203004, EconWPA, revised 06 Mar 2002.
  2. 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.
  3. Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. 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.
  5. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 870-75, September.
  6. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1259-62, December.
  7. Francine Lafontaine & Joanne E. Oxley, 2004. "International Franchising Practices in Mexico: Do Franchisors Customize Their Contracts?," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 95-123, 03.
  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. Yongmin Chen, 2006. "Marketing Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 101-123, 03.
  10. Chrysovalantou Milliou & Emmanuel Petrakis, 2004. "Business-to-business electronic marketplaces: Joining a public or creating a private," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 9(2), pages 99-112.
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