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Input price discrimination and upstream R&D investments

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  • Ioannis N. Pinopoulos

    (Department of Economics, University of Macedonia)

Abstract

We study the welfare effects of input price discrimination when an upstream supplier that secretly contracts with two cost-asymmetric downstream firms undertakes R&D investments. We show that a ban on input price discrimination increases (decreases) the level of upstream R&D investments when downstream cost-asymmetry is relatively low (high). Nevertheless, we find that welfare always decreases after the ban. Thus, input price discrimination should be welcomed rather than prohibited even when it stifles the upstream supplier’s incentives to engage in cost-reduction activities.

Suggested Citation

  • Ioannis N. Pinopoulos, 2017. "Input price discrimination and upstream R&D investments," Discussion Paper Series 2017_06, Department of Economics, University of Macedonia, revised Jun 2017.
    • Handle: RePEc:mcd:mcddps:2017_06
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    References listed on IDEAS

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    Cited by:

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    2. Ioannis N. Pinopoulos, 2022. "Input Price Discrimination, Two‐Part Tariffs and Bargaining," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 1058-1090, December.
    3. Akio Kawasaki & Tomomichi Mizuno & Kazuhiro Takauchi, 2023. "Downstream new product development and upstream process innovation," Journal of Economics, Springer, vol. 140(3), pages 209-231, December.
    4. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.
    5. Lømo, Teis Lunde, 2023. "Input price discrimination with two-part tariffs and quantity competition," Economics Letters, Elsevier, vol. 225(C).
    6. Kangsik Choi & DongJoon Lee & Seonyoung Lim, 2022. "A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(2), pages 223-246, September.
    7. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    8. Chen, Fang-Yueh, 2023. "Trade warfare and sanctions in vertically related markets," Economic Modelling, Elsevier, vol. 121(C).
    9. Colombo, Stefano & Lambertini, Luca, 2023. "R&D investments with spillovers and endogenous horizontal differentiation," Regional Science and Urban Economics, Elsevier, vol. 98(C).

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    More about this item

    Keywords

    Input price discrimination; R&D investments; vertical contracting; welfare.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • 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

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