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Input price discrimination (bans), entry and welfare

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

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.

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 99.

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Date of creation: 2013
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Handle: RePEc:zbw:dicedp:99
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  1. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages C149-C165, 03.
  2. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19.
  3. 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.
  4. 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.
  5. Valletti, Tommaso, 2002. "Input Price Discrimination with Downstream Cournot Competitors," CEPR Discussion Papers 3570, C.E.P.R. Discussion Papers.
  6. 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.
  7. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-53, December.
  8. Justus Haucap & Uwe Pauly & Christian Wey, 2000. "Collective Wage Setting When Wages Are Generally Binding: An Antitrust Perspective," CIG Working Papers FS IV 00-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  9. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
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