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Partial Price Discrimination By An Upstream Monopolist

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Author Info

  • Ramón Faulí-Oller

    ()
    (Universidad de Alicante)

  • Lluís Bru

    ()
    (Universitat de les Illes Balears)

  • Joel Sandonís

    ()
    (Universidad de Alicante)

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

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-03.

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Length: 21 pages
Date of creation: Feb 2006
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-03

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Keywords: Price discrimination; input markets;

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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. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Francine Lafontaine & Joanne E. Oxley, 2004. "International Franchising Practices in Mexico: Do Franchisors Customize Their Contracts?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 95-123, 03.
  7. Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization 0207007, EconWPA.
  8. Yongmin Chen, 2006. "Marketing Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 101-123, 03.
  9. 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., vol. 9(2), pages 99-112.
  10. 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.
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