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Input price discrimination and incentives for raising rivals’ costs

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  • Chin-Sheng Chen

    (Soochow University)

Abstract

This research analyzes the effects of input price discrimination when downstream firms have incentives for raising rivals’ costs. In the model, an input monopolist chooses unit prices for the input sold to two downstream firms via either discriminatory pricing or uniform pricing. Results show that the more efficient firm has stronger incentives than the less efficient firm to undertake cost-raising activities. Relative to uniform pricing, the more efficient firm causes a smaller amount of cost increase to the rival firm under discriminatory pricing. In contrast, discriminatory pricing may induce the less efficient firm to make a greater amount of cost increase. We find that input price discrimination could benefit both consumers and downstream firms and hence is socially desirable.

Suggested Citation

  • Chin-Sheng Chen, 2024. "Input price discrimination and incentives for raising rivals’ costs," The Japanese Economic Review, Springer, vol. 75(2), pages 333-353, April.
  • Handle: RePEc:spr:jecrev:v:75:y:2024:i:2:d:10.1007_s42973-022-00121-2
    DOI: 10.1007/s42973-022-00121-2
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Input price discrimination; Vertically related markets; Raising rivals’ costs; 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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