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The welfare effects of input price discrimination revisited

Author

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  • Li, Youping
  • Zhang, Jianhu

Abstract

This paper revisits the welfare effects of input price discrimination in the canonical model in which an upstream monopolist, under linear pricing, sells an intermediate good to downstream Cournot competitors with different marginal costs. By leveling the downstream players, input price discrimination may have a positive output effect, with the magnitude depending on the convexity of final market demand and its rate of change. When demand is linear, concave, or convex with limited and nonincreasing convexity, welfare is reduced compared with uniform pricing. Instead, when there is sufficient and nondecreasing convexity—often observed in constant elasticity demand—price discrimination increases total welfare.

Suggested Citation

  • Li, Youping & Zhang, Jianhu, 2024. "The welfare effects of input price discrimination revisited," International Journal of Industrial Organization, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:indorg:v:95:y:2024:i:c:s0167718724000389
    DOI: 10.1016/j.ijindorg.2024.103083
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    More about this item

    Keywords

    Price discrimination; Intermediate good; Welfare;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • K2 - Law and Economics - - Regulation and Business Law
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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