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Price-Discrimination with Nonlinear Contracts in Input Markets

Author

Listed:
  • Can Erutku

    (Glendon College, York University)

Abstract

Most of the literature on price discrimination in input markets has focused on linear per-unit prices used by a monopolist supplier. Here, we provide a complete characterization of the equilibrium two-part tariffs, which can allow the monopolist supplier to obtain (at a minimum) the profit that an efficient downstream firm would earn. Depending on the characteristics of the industry, the supplier can find it profitable to monopolize the downstream market. Price discrimination with nonlinear contracts can nonetheless improve welfare as it can eliminate the double marginalization problem and remove an inefficient firm from the market.

Suggested Citation

  • Can Erutku, 2012. "Price-Discrimination with Nonlinear Contracts in Input Markets," Economics Bulletin, AccessEcon, vol. 32(3), pages 1813-1820.
    • Handle: RePEc:ebl:ecbull:eb-11-00047
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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