Input price discrimination can encourage downstream investment and increase welfare

Romain Lestage and Youping Li

Economics Letters, 2022, vol. 217, issue C

Abstract: This paper investigates the implications of input price discrimination when an upstream monopolist commits to prices before downstream firms make R&D investment and output decisions. We find that input price discrimination can stimulate downstream R&D investment and shift production efficiently relative to uniform pricing. Specifically, input price discrimination impedes investment when the investing firm is a technological leader, fosters investment when it is a laggard, and may improve welfare when investment allows the laggard to overtake the leader. An important policy implication of our results is that antitrust regulation that allows input price discrimination may contribute to technological catch-up.

Keywords: Commitment; Distance to frontier; Price discrimination; R&D investment; Technological catch-up (search for similar items in EconPapers)
JEL-codes: L1 O3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:217:y:2022:i:c:s0165176522002373

DOI: 10.1016/j.econlet.2022.110697

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