A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting

Kangsik Choi (), DongJoon Lee () and Seonyoung Lim ()
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Kangsik Choi: Pusan National University
DongJoon Lee: Osaka Sangyo University and Nagoya University of Commerce and Business
Seonyoung Lim: Mokpo National University

Review of Industrial Organization, 2022, vol. 61, issue 2, No 5, 223-246

Abstract: Abstract By allowing the supplier to contract simultaneously or sequentially with asymmetric retailers under Bertrand competition, we analyze the welfare implications of banning price discrimination in input markets. In contrast to Cournot competition, we find that: (i) under sequential contracting, the monopolistic supplier prefers to contract with an inefficient retailer first and an efficient retailer later; and (ii) when comparing consumers' surplus and social welfare under simultaneous and sequential contracting with uniform pricing (resp. price discrimination), consumers' surplus and welfare are smaller (resp. greater) in sequential contracting than in simultaneous contracting. However, the supplier always prefers simultaneous contracting over sequential contracting under Bertrand competition; and thus sequential contracting does not occur. And, in simultaneous contracting, consumer surplus and total welfare are higher for uniform pricing than price discrimination.

Keywords: Bertrand competition; Asymmetric cost; Price discrimination; Simultaneous contracting (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11151-022-09873-y

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