Production efficiency, input price discrimination, and social welfare

Kuo-Feng Kao and Cheng-Hau Peng ()

Asia-Pacific Journal of Accounting & Economics, 2012, vol. 19, issue 2, 227-237

Abstract: This paper re-examines the welfare implications of input price discrimination by considering the possibility of the structural change in the final goods market. When the marginal cost difference is moderate, price discrimination is more socially desirable as the upstream firm serves more downstream firms under price discrimination than uniform pricing. Surprisingly, when the marginal cost difference is sufficiently large, although the upstream monopolist serves more downstream firms and more outputs are produced under price discrimination than uniform pricing, the social welfare is lower under price discrimination. This result runs against those prevailing in the literature without market structural change.

Date: 2012
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DOI: 10.1080/16081625.2012.667382

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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