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Timing of investments and third degree price discrimination in intermediate good markets

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  • Li, Youping

Abstract

This paper studies the discriminatory pricing of an intermediate good and compares two models with a different timing of investments undertaken by the downstream firms, before or after the upstream monopolist sets the input prices. When the more efficient downstream firm is charged a higher price than the less efficient firm in the first model, in the second model when investments are made after input prices are set, it may be charged a lower price due to the additional indirect effect of input prices on derived demands (via the change of investment incentives). It is illustrated that, with linear market demand and quadratic investment cost, whether a lower or higher price is charged to the more efficient firm depends on the ratio of the linear and quadratic coefficients in the cost function.

Suggested Citation

  • Li, Youping, 2013. "Timing of investments and third degree price discrimination in intermediate good markets," Economics Letters, Elsevier, vol. 121(2), pages 316-320.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:2:p:316-320
    DOI: 10.1016/j.econlet.2013.08.032
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    References listed on IDEAS

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    Cited by:

    1. Youping Li & Jie Shuai, 2022. "Input price discrimination and horizontal shareholding," Journal of Regulatory Economics, Springer, vol. 61(1), pages 48-66, February.
    2. Jiaxin Han & Chenhang Zeng, 2023. "The effects of downstream entry in a vertical mixed oligopoly: the role of input pricing," Journal of Economics, Springer, vol. 140(1), pages 37-61, September.
    3. Youping Li, 2017. "Differential Pricing in Intermediate Good Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 585-596, September.

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    More about this item

    Keywords

    Price discrimination; Intermediate good; Investment; Timing;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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