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Input price discrimination with two-part tariffs and quantity competition

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  • Lømo, Teis Lunde

Abstract

This paper studies the effects of banning input price discrimination when a supplier offers two-part tariffs to two downstream firms who have different marginal costs and compete in quantities. I show that such a policy gives a lower input price for the less efficient buyer and a higher input price for the more efficient buyer if final goods are close substitutes and higher input prices for both buyers if final goods are more differentiated. In either case, a ban on price discrimination reduces total output, consumer surplus, and total welfare.

Suggested Citation

  • Lømo, Teis Lunde, 2023. "Input price discrimination with two-part tariffs and quantity competition," Economics Letters, Elsevier, vol. 225(C).
  • Handle: RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000952
    DOI: 10.1016/j.econlet.2023.111070
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    References listed on IDEAS

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    1. Valletti, Tommaso M., 2003. "Input price discrimination with downstream Cournot competitors," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 969-988, September.
    2. 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.
    3. 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.
    4. Lestage, Romain & Li, Youping, 2022. "Input price discrimination can encourage downstream investment and increase welfare," Economics Letters, Elsevier, vol. 217(C).
    5. Ioannis N. Pinopoulos, 2020. "Input Price Discrimination and Upstream R&D Investments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(1), pages 85-106, August.
    6. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Price discrimination; Input markets; Vertical relations; Two-part tariffs; Quantity competition;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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