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Price Discrimination in Input Markets: Quantity Discounts and Private Information

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Listed:
  • Herweg, Fabian
  • Müller, Daniel

Abstract

We consider a monopolistic supplier’s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform pricing, the same wholesale tariff is offered to all downstream firms. In contrast to the extant literature on price discrimination with non-linear wholesale tariffs, we find that banning discriminatory wholesale contracts often improves welfare. This also holds if the manufacturer is not an unconstrained monopolist. Moreover, uniform pricing increases downstream investments in cost reduction in the long run.

Suggested Citation

  • Herweg, Fabian & Müller, Daniel, 2013. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Munich Reprints in Economics 19452, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19452
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    Cited by:

    1. Jeanine Miklós‐Thal & Greg Shaffer, 2021. "Input price discrimination by resale market," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 727-757, December.
    2. Allain, Marie-Laure & Chambolle, Claire & Turolla, Stéphane, 2022. "The Effect of Input Price Discrimination on Retail Prices: Theory and Evidence from France," Working Papers 327329, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    3. 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.
    4. Hunold, Matthias, 2020. "Non-Discriminatory Pricing, Partial Backward Ownership, and Entry Deterrence," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    5. Ignatenko, Anna, 2024. "Competition and Price Discrimination in International Transportation," Discussion Paper Series in Economics 6/2024, Norwegian School of Economics, Department of Economics.
    6. Brito, Duarte & Tselekounis, Markos & Vasconcelos, Helder, 2019. "Input price discrimination in the presence of downstream vertical differentiation," Economics Letters, Elsevier, vol. 184(C).
    7. Ioannis N. Pinopoulos, 2020. "Input Price Discrimination and Upstream R&D Investments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(1), pages 85-106, August.
    8. Hunold, Matthias, 2017. "Backward ownership, uniform pricing and entry deterrence," DICE Discussion Papers 250, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Uğur Akgün & Ioana Chioveanu, 2019. "Wholesale price discrimination: Innovation incentives and upstream competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(3), pages 510-519, June.
    10. Asseyer, Andreas, 2020. "Wholesale price discrimination with regulatory asymmetry," Discussion Papers 2020/1, Free University Berlin, School of Business & Economics.
    11. 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.
    12. Herweg, Fabian & Müller, Daniel, 2016. "Discriminatory nonlinear pricing, fixed costs, and welfare in intermediate-goods markets," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 107-136.
    13. Romain Lestage, 2021. "Input price discrimination and non-controlling vertical shareholding," Journal of Regulatory Economics, Springer, vol. 59(3), pages 226-250, June.
    14. Ioannis N. Pinopoulos, 2022. "Input Price Discrimination, Two‐Part Tariffs and Bargaining," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 1058-1090, December.
    15. Jie Shuai & Mengyuan Xia & Chenhang Zeng, 2023. "Upstream market structure and downstream partial ownership," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 22-47, January.
    16. Jong-Hee Hahn & Chan KIm, 2018. "Input price discrimination with differentiated final products," Working papers 2018rwp-118, Yonsei University, Yonsei Economics Research Institute.
    17. Youping Li, 2017. "Differential Pricing in Intermediate Good Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 585-596, September.
    18. Asseyer, Andreas, 2025. "Information orders in screening problems," Journal of Economic Theory, Elsevier, vol. 225(C).
    19. Kangsik Choi & DongJoon Lee & Seonyoung Lim, 2022. "A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(2), pages 223-246, September.
    20. 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.
    21. Germain Gaudin & Romain Lestage, 2022. "Input Price Discrimination, Demand Forms, And Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 70(4), pages 1033-1057, December.
    22. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    23. Peng Ma & Yujia Lu & Haiyan Wang & Danping Wen, 2023. "Retailers' information disclosure strategies with behavior‐based pricing in competitive supply chains," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(5), pages 2973-2997, July.
    24. Li, Youping & Zhang, Jianhu, 2024. "The welfare effects of input price discrimination revisited," International Journal of Industrial Organization, Elsevier, vol. 95(C).
    25. 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.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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