Strategic Input Price Discrimination with Horizontal Shareholding

Price discrimination has substantial social and policy implications and has received attention in the literature. However, prior research on input price discrimination has largely been limited to single-input situations. We explore the strategic desirability of uniform pricing, fill gaps in the prior literature regarding the “nondiscriminatory” aspect of input price discrimination, and contribute to the growing literature on perfectly complementary inputs in ver- tical markets. This study considers a vertically related market in which two symmetric upstream firms provide perfectly complementary inputs for two downstream manufacturers, one of which has a non-controlling interest in its rival. Each upstream firm can choose between two pricing regimes: discrim- inatory or uniform. This study shows that, although uniform pricing limits pricing flexibility, one upstream firm voluntarily chooses uniform pricing, and the other chooses discriminatory pricing in equilibrium. To our knowledge, this study is the first to demonstrate such an asymmetric pricing equilibrium. Furthermore, our findings have implications for policymakers deciding whether to prohibit discriminatory pricing.