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Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination

Author

Listed:
  • Chen Junlin

    (Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China)

  • Mukherjee Arijit

    (Nottingham University Business School, Nottingham, UK)

  • Zeng Chenhang

    (Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China)

Abstract

We study social efficiency of entry in the presence of downstream cost asymmetry and upstream price discrimination. We show that entry is excessive when the entrants are highly inefficient, and it is insufficient when either the entrants are efficient or their inefficiency is low. The results are in sharp contrast to the existing literature considering upstream uniform pricing (Cao, H., and L. F. S. Wang. 2020. “Social Efficiency of Entry in a Vertically Related Industry Revisited.” Economics Letters 129. Art. no. 109200), as discriminatory pricing alters the relative strengths of the business-stealing, business-creation and production-(in)efficiency effects.

Suggested Citation

  • Chen Junlin & Mukherjee Arijit & Zeng Chenhang, 2023. "Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 23(1), pages 223-243, January.
    • Handle: RePEc:bpj:bejtec:v:23:y:2023:i:1:p:223-243:n:12
    DOI: 10.1515/bejte-2021-0069
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    More about this item

    Keywords

    excessive entry; insufficient entry; vertical market; price discrimination;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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