Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination

Chen Junlin, Arijit Mukherjee and Chenhang Zeng
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Chen Junlin: Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China

The B.E. Journal of Theoretical Economics, 2023, vol. 23, issue 1, 223-243

Abstract: We study social efficiency of entry in the presence of downstream cost asymmetry and upstream price discrimination. We show that entry is excessive when the entrants are highly inefficient, and it is insufficient when either the entrants are efficient or their inefficiency is low. The results are in sharp contrast to the existing literature considering upstream uniform pricing (Cao, H., and L. F. S. Wang. 2020. “Social Efficiency of Entry in a Vertically Related Industry Revisited.” Economics Letters 129. Art. no. 109200), as discriminatory pricing alters the relative strengths of the business-stealing, business-creation and production-(in)efficiency effects.

Keywords: excessive entry; insufficient entry; vertical market; price discrimination (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejte-2021-0069

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