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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. 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.
    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, December.
    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. Lestage, Romain & Li, Youping, 2022. "Input price discrimination can encourage downstream investment and increase welfare," Economics Letters, Elsevier, vol. 217(C).
    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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