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Input price discrimination in the presence of downstream vertical differentiation

Author

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  • Brito, Duarte
  • Tselekounis, Markos
  • Vasconcelos, Helder

Abstract

This paper investigates the competitive effects of input price discrimination (IPD) in a setting in which an upstream monopolist produces an essential input supplied to the downstream market where there is competition between two vertically differentiated retailers. Two different input pricing regimes are investigated: (i) the uniform pricing regime, in which third-degree input price discrimination is prohibited; and (ii) a discriminatory pricing regime, under which the upstream monopolist may charge different prices to the two downstream firms. We find that despite favoring the low-quality firm, IPD is welfare enhancing if and only if the quality gap is sufficiently high.

Suggested Citation

  • Brito, Duarte & Tselekounis, Markos & Vasconcelos, Helder, 2019. "Input price discrimination in the presence of downstream vertical differentiation," Economics Letters, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:ecolet:v:184:y:2019:i:c:s0165176519303064
    DOI: 10.1016/j.econlet.2019.108622
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    References listed on IDEAS

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    Cited by:

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    3. Toshiki Matsuoka, 2023. "Input price discrimination and strategic inventory," Manchester School, University of Manchester, vol. 91(2), pages 118-138, March.
    4. Shana Cui & David E. M. Sappington, 2021. "Access pricing in network industries with mixed oligopoly," Journal of Regulatory Economics, Springer, vol. 59(3), pages 193-225, June.
    5. Marc Escrihuela‐Villar & Walter Ferrarese, 2022. "Asymmetric input contracts under price leadership," Manchester School, University of Manchester, vol. 90(1), pages 77-91, January.

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    More about this item

    Keywords

    Input price discrimination; Vertical differentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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