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Input price discrimination (bans), entry and welfare

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  • Dertwinkel-Kalt, Markus
  • Haucap, Justus
  • Wey, Christian

Abstract

Katz (1987), DeGraba (1990), and Yoshida (2000) have formulated theories that price discrimination bans in intermediary goods markets tend to have positive effects on allocative, dynamic and productive efficiency, respectively. We show that none of these results is robust vis-à-vis endogenous changes in downstream market structure. An upstream monopolist's ability to price discriminate can intensify competition through entry (by a technically inefficient entrant), resulting in socially preferable market outcomes. In contrast, discrimination bans tend to blockade entry of relatively inefficient firms , thereby strengthening downstream market concentration.

Suggested Citation

  • Dertwinkel-Kalt, Markus & Haucap, Justus & Wey, Christian, 2013. "Input price discrimination (bans), entry and welfare," DICE Discussion Papers 99, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:99
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    References listed on IDEAS

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    1. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages 149-165, March.
    2. Valletti, Tommaso M., 2003. "Input price discrimination with downstream Cournot competitors," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 969-988, September.
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    4. Banerjee, Samiran & Lin, Ping, 2003. "Downstream R&D, raising rivals' costs, and input price contracts," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 79-96, January.
    5. Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001. "Collective wage setting when wages are generally binding An antitrust perspective," International Review of Law and Economics, Elsevier, vol. 21(3), pages 287-307, September.
    6. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19, March.
    7. Roman Inderst & Greg Shaffer, 2009. "Market power, price discrimination, and allocative efficiency in intermediate‐goods markets," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 658-672, December.
    8. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
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    Cited by:

    1. Fabian Herweg & Daniel Müller, 2012. "Price Discrimination in Input Markets: Downstream Entry and Efficiency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 773-799, September.
    2. Herweg, Fabian & Müller, Daniel, 2010. "Price Discrimination in Input Markets: Downstream Entry and Welfare," Bonn Econ Discussion Papers 06/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Kim, Hyunchul & Sim, Seung-Gyu, 2015. "Price discrimination and sequential contracting in monopolistic input markets," Economics Letters, Elsevier, vol. 128(C), pages 39-42.
    4. Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2016. "Sourcing strategies of a multi-input-multi-product firm," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 30-45.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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