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Input Price Discrimination with Downstream Cournot Competitors

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  • Valletti, Tommaso

Abstract

This Paper addresses the question of third-degree price discrimination in input markets. I propose a solution that relies on a method that decomposes the upstream monopolist’s profit into two parts, one that depends on average input prices, and one that depends on their distribution. I am able to obtain rather general results, and, in the linear demand case, I obtain a full characterization of the equilibria in the two regimes of price discrimination and price uniformity, generalizing the findings of Yoshida (2000). Under reasonable assumptions, input price discrimination negatively affects both consumer surplus and total welfare.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3570.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3570

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Keywords: input price discrimination;

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References

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  1. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  2. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-33, May.
  3. Ngo Van Long & Antoine Soubeyran, 1999. "Input Price Discrimination, Access Pricing, and Bypass," CIRANO Working Papers 99s-23, CIRANO.
  4. Bergstrom, Theodore C & Varian, Hal R, 1985. "When Are Nash Equilibria Independent of the Distribution of Agents' Characteristics?," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 715-18, October.
  5. 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.
  6. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-67, March.
  7. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, November.
  8. 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.
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Citations

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Cited by:
  1. Kim, Jeong-Yoo & Nahm, Jae, 2007. "Reexamining the effect of the most-favored-nation provision in input prices on R and D incentives," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 201-217, February.
  2. Daniel Müller & Fabian Herweg, 2009. "Price Discrimination in Input Markets: Downstream Entry and Welfare," Bonn Econ Discussion Papers bgse06_2010, University of Bonn, Germany.
  3. Herweg, Fabian & Müller, Daniel, 2011. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Discussion Papers in Economics 12414, University of Munich, Department of Economics.
  4. repec:ebl:ecbull:v:17:y:2007:i:2:p:1-10 is not listed on IDEAS
  5. Pei-Cheng Liao, 2010. "Discriminatory input pricing and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 263-276.
  6. Jota Ishikawa & Eiji Horiuchi, 2012. "Strategic Foreign Direct Investment in Vertically Related Markets," The Economic Record, The Economic Society of Australia, vol. 88(281), pages 229-242, 06.
  7. Shigeru Matsumoto & Hajime Sugeta, 2007. "Antitrust Policy and Environmental Protection," Economics Bulletin, AccessEcon, vol. 17(2), pages 1-10.
  8. Fabian Herweg & Daniel Müller, 2013. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," CESifo Working Paper Series 4202, CESifo Group Munich.

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