Optional linear input prices in vertical relations
This paper examines how the option of a regulated linear input price affects vertical contracting, where a monopolistic upstream supplier sequentially offers supply contracts to two symmetric downstream firms. We find that equilibrium contracts vary with production cost and regulated price level: If the regulated price is not too high, the option allows for price discrimination, but prevents foreclosure in the intermediary market. Indeed, if both cost and optional price are rather low, non-discriminatory input prices below cost may arise. Optional input prices are socially more desirable than a flat ban on price discrimination, as consumers benefit from more intense downstream competition.
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- Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
- Jordi Gual & Anne Perrot & Michele Polo & Patrick Rey & Klaus Schmidt & Rune Stenbacka, 2006.
"An Economic Approach to Article 82,"
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- Gual, Jordi & Hellwig, Martin F. & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82," Discussion Papers in Economics 745, University of Munich, Department of Economics.
- Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
- Rey, Patrick & Tirole, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
- de Fontenay, Catherine C. & Gans, Joshua S., 2005. "Optional fixed fees in multilateral vertical relations," Economics Letters, Elsevier, vol. 88(2), pages 184-189, August.
- Pio Baake & Ulrich Kamecke & Hans-Theo Normann, 2001. "Vertical Integration and Market Foreclosure with Convex Downstream Costs," Discussion Papers of DIW Berlin 260, DIW Berlin, German Institute for Economic Research.
- Baake, P. & Kamecke, U. & Normann, H.T., 2001. "Vertical Integration and Market Foreclosure with Convex Downstream Costs," Papers 178, Flinders of South Australia - Discipline of Economics.
- 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.
- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
- Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
- King, Stephen P. & Maddock, Rodney, 1999. "Light-handed regulation of access in Australia: negotiation with arbitration," Information Economics and Policy, Elsevier, vol. 11(1), pages 1-22, March.
- R. Preston McAfee & Marius Schwartz, 2004. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Reply," American Economic Review, American Economic Association, vol. 94(3), pages 802-803, June.
- 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.
- Marx, Leslie M. & Shaffer, Greg, 2004. "Opportunism and menus of two-part tariffs," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1399-1414, December. Full references (including those not matched with items on IDEAS)
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