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Discriminatory input pricing and strategic delegation

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  • Pei-Cheng Liao

    (Department of Accounting, National Taiwan University, Taiwan)

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    Abstract

    This paper examines how discriminatory input pricing by an upstream monopolist affects the incentives that owners of downstream duopolists offer their managers. Regardless of the mode of competition (quantity or price), owners of downstream firms induce their managers to be more profit-oriented and to behave less aggressively when the monopolist is allowed to price-discriminate than when he charges a uniform price. If the monopolist price-discriminates, managerial downstream firms always earn more than owner-managed profit-maximizing firms. However, if the monopolist charges a uniform price, managerial downstream firms earn more than profit-maximizing counterparts under price competition and earn less under quantity competition. Copyright © 2009 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1476
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 31 (2010)
    Issue (Month): 4 ()
    Pages: 263-276

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    Handle: RePEc:wly:mgtdec:v:31:y:2010:i:4:p:263-276

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. R. Preston McAfee, 1999. "The effects of vertical integration on competing input suppliers," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-8.
    2. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
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    17. Tyagi, Rajeev K, 2001. "Why Do Suppliers Charge Larger Buyers Lower Prices?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 45-61, March.
    18. Miller, Nolan H. & Pazgal, Amit, 2005. "Strategic trade and delegated competition," Journal of International Economics, Elsevier, vol. 66(1), pages 215-231, May.
    19. Barros, Fatima & Grilo, Isabel, 2002. "Delegation in a Vertically Differentiated Duopoly," Manchester School, University of Manchester, vol. 70(1), pages 164-84, January.
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