Price Discrimination in Input Markets: Downstream Entry and Welfare
AbstractThe extant theory on price discrimination in input markets takes the structure of the intermediate industry as exogenously given. This paper endogenizes the structure of the intermediate industry and examines the effects of banning third-degree price discrimination on market structure and welfare. We identify situations where banning price discrimination leads to either higher or lower prices for all downstream firms. These findings are driven by the fact that upstream profits are discontinuous due to entry being costly. Moreover, permitting price discrimination fosters entry which in many cases improves welfare. Nevertheless, entry can also reduce welfare because it may lead to a severe inefficiency in production.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse06_2010.
Date of creation: Aug 2009
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de
Entry; Input Markets; Market Structure; Price Discrimination; Vertical Contracting;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
- Roman Inderst & Tommaso Valletti, 2006.
"Price Discrimination in Input Markets,"
CEIS Research Paper
73, Tor Vergata University, CEIS.
- Valletti, Tommaso M., 2003.
"Input price discrimination with downstream Cournot competitors,"
International Journal of Industrial Organization,
Elsevier, vol. 21(7), pages 969-988, September.
- Valletti, Tommaso, 2002. "Input Price Discrimination with Downstream Cournot Competitors," CEPR Discussion Papers 3570, C.E.P.R. Discussion Papers.
- Schmalensee, Richard, 1981.
"Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination,"
American Economic Review,
American Economic Association, vol. 71(1), pages 242-47, March.
- Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Jerry A. Hausman & Jeffrey K. MacKie-Mason, 1988.
"Price Discrimination and Patent Policy,"
RAND Journal of Economics,
The RAND Corporation, vol. 19(2), pages 253-265, Summer.
- Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, vol. 90(1), pages 240-246, March.
- Dertwinkel-Kalt, Markus & Haucap, Justus & Wey, Christian, 2013. "Input price discrimination (bans), entry and welfare," DICE Discussion Papers 99, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
- Roman Inderst & Greg Shaffer, 2009. "Market power, price discrimination, and allocative efficiency in intermediate-goods markets," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 658-672.
- Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-62, December.
- Malueg, David A, 1993. "Bounding the Welfare Effects of Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 83(4), pages 1011-21, September.
- Stéphane Caprice, 2006. "Multilateral Vertical Contracting with an Alternative Supply: The Welfare Effects of a Ban on Price Discrimination," Review of Industrial Organization, Springer, vol. 28(1), pages 63-80, 02.
- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
- DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-53, December.
- Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
- Emmanuel Petrakis & Chrysovalantou Miliou & Nikos Vettas, 2009. "(In)efficient trading forms in competing vertical chains," Working Papers 0916, University of Crete, Department of Economics.
- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).
If references are entirely missing, you can add them using this form.