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Partial Price Discrimination By An Upstream Monopolist

Author

Listed:
  • Ramón Faulí-Oller

    () (Universidad de Alicante)

  • Lluís Bru

    () (Universitat de les Illes Balears)

  • Joel Sandonís

    () (Universidad de Alicante)

Abstract

We analyze third degree price discrimination by an upstream monopolistto a continuum of heterogeneous downstream firms. The novelty of ourapproach is to recognize that customizing prices may be costly, whichintroduces an interesting trade-off. As a consequence, partial pricediscrimination arises in equilibrium. In particular, we show that inefficientdownstream firms receive personalized prices whereas efficient firms arecharged a uniform price. The extreme cases of complete price discriminationand uniform price arise in our setting as particular cases, depending on the costof customizing prices.

Suggested Citation

  • Ramón Faulí-Oller & Lluís Bru & Joel Sandonís, 2006. "Partial Price Discrimination By An Upstream Monopolist," Working Papers. Serie AD 2006-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2006-03
    as

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    References listed on IDEAS

    as
    1. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-1262, December.
    2. Qihong Liu & Konstantinos Serfes, 2004. "Quality of Information and Oligopolistic Price Discrimination," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 671-702, December.
    3. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    4. Francine Lafontaine & Joanne E. Oxley, 2004. "International Franchising Practices in Mexico: Do Franchisors Customize Their Contracts?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 95-123, March.
    5. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    6. 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.
    7. 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.
    8. Yongmin Chen, 2006. "Marketing Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 101-123, March.
    9. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-1253, December.
    10. Chrysovalantou Milliou & Emmanuel Petrakis, 2004. "Business-to-business electronic marketplaces: Joining a public or creating a private," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 99-112.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Price discrimination; input markets;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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