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Production efficiency, input price discrimination, and social welfare

Author

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  • Kuo-Feng Kao
  • Cheng-Hau Peng

Abstract

This paper re-examines the welfare implications of input price discrimination by considering the possibility of the structural change in the final goods market. When the marginal cost difference is moderate, price discrimination is more socially desirable as the upstream firm serves more downstream firms under price discrimination than uniform pricing. Surprisingly, when the marginal cost difference is sufficiently large, although the upstream monopolist serves more downstream firms and more outputs are produced under price discrimination than uniform pricing, the social welfare is lower under price discrimination. This result runs against those prevailing in the literature without market structural change.

Suggested Citation

  • Kuo-Feng Kao & Cheng-Hau Peng, 2012. "Production efficiency, input price discrimination, and social welfare," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 19(2), pages 227-237.
  • Handle: RePEc:taf:raaexx:v:19:y:2012:i:2:p:227-237
    DOI: 10.1080/16081625.2012.667382
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    Cited by:

    1. 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.
    2. Chin-Sheng Chen & Hong Hwang, 2014. "Spatial Price Discrimination in Input Markets with an Endogenous Market Boundary," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 139-152, September.

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