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Raising rivals’ cost through buyer power

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  • Dertwinkel-Kalt, Markus
  • Haucap, Justus
  • Wey, Christian

Abstract

We re-examine the view that a ban on price discrimination in input markets is particularly desirable in the presence of buyer power. This argument crucially depends on an inverse relationship between downstream firms’ profits and the uniform input price. Assuming different input efficiencies among downstream firms, we derive a necessary and sufficient condition such that a higher input price benefits a subset of relatively efficient downstream firms. In such instances, consumers may be better off if discriminatory pricing is feasible.

Suggested Citation

  • Dertwinkel-Kalt, Markus & Haucap, Justus & Wey, Christian, 2015. "Raising rivals’ cost through buyer power," Economics Letters, Elsevier, vol. 126(C), pages 181-184.
    • Handle: RePEc:eee:ecolet:v:126:y:2015:i:c:p:181-184
    DOI: 10.1016/j.econlet.2014.12.011
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    References listed on IDEAS

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    1. 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.
    2. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19, March.
    3. 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.
    4. Oliver E. Williamson, 1968. "Wage Rates as a Barrier to Entry: The Pennington Case in Perspective," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(1), pages 85-116.
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    Citations

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    Cited by:

    1. Romain Lestage, 2021. "Input price discrimination and non-controlling vertical shareholding," Journal of Regulatory Economics, Springer, vol. 59(3), pages 226-250, June.
    2. Justus Haucap & Torben Stühmeier, 2016. "Competition and antitrust in Internet markets," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 9, pages 183-210, Edward Elgar Publishing.
    3. Shohei Yoshida, 2018. "Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship," Journal of Economics, Springer, vol. 124(2), pages 139-158, June.
    4. Sungwan Hong & Seung-Gyu Sim, 2018. "Inelastic Supply of Fossil Energy and Competing Environmental Regulatory Policies," Sustainability, MDPI, vol. 10(2), pages 1-17, January.
    5. Karbowski, Adam, 2019. "Greed and fear in downstream R&D games," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 32, pages 63-76.
    6. Kim, Hyunchul & Sim, Seung-Gyu, 2015. "Price discrimination and sequential contracting in monopolistic input markets," Economics Letters, Elsevier, vol. 128(C), pages 39-42.
    7. Haucap, Justus, 2015. "Ordnungspolitik und Kartellrecht im Zeitalter der Digitalisierung," DICE Ordnungspolitische Perspektiven 77, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Haucap, Justus & Heimeshoff, Ulrich, 2017. "Ordnungspolitik in der digitalen Welt," DICE Ordnungspolitische Perspektiven 90, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Price discrimination; Buyer power; Raising rivals’ cost;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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