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Input Price Discrimination and Allocation Efficiency

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  • Chin-Sheng Chen

    (Soochow University)

Abstract

This research examines the effects of input price discrimination on allocation efficiency and social welfare. Instead of assuming constant marginal costs, we allow downstream firms to produce under increasing marginal costs. When downstream firms operate in separate markets, even though total output remains unchanged, consumer surplus and social welfare could be greater under discriminatory pricing than under uniform pricing. Moreover, the social desirability of input price discrimination can still hold true when downstream firms compete either in Cournot or Bertrand fashion.

Suggested Citation

  • Chin-Sheng Chen, 2022. "Input Price Discrimination and Allocation Efficiency," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 93-107, February.
    • Handle: RePEc:kap:revind:v:60:y:2022:i:1:d:10.1007_s11151-021-09830-1
    DOI: 10.1007/s11151-021-09830-1
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    References listed on IDEAS

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    1. Valletti, Tommaso M., 2003. "Input price discrimination with downstream Cournot competitors," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 969-988, September.
    2. Chin-Sheng Chen, 2017. "Price Discrimination in Input Markets and Quality Differentiation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 367-388, May.
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    Cited by:

    1. 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.
    2. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.

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    More about this item

    Keywords

    Input price discrimination; Diminishing-marginal-return technology; Increasing marginal cost; Welfare;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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