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Price Discrimination in Input Markets and Quality Differentiation

Chin-Sheng Chen ()
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Chin-Sheng Chen: Soochow University

Review of Industrial Organization, 2017, vol. 50, issue 3, 367-388

Abstract: Abstract This paper examines the welfare implications of input price discrimination in a vertically-related market, which is composed of a monopolistic upstream market and a duopolistic downstream market. The downstream duopolists produce quality-differentiated products at different marginal costs. We show that the equilibrium input prices are closely related to the downstream quality gap and cost difference. When the monopolist simply charges a unit wholesale price for its input product, discriminatory pricing could be socially desirable even though the aggregate output remains unchanged. Nevertheless, if a two-part tariff is feasible, then banning price discrimination could increase the aggregate output and social welfare.

Keywords: Input price discrimination; Wholesale price discrimination; Quality differentiation; Two-part tariffs; Social welfare (search for similar items in EconPapers)
JEL-codes: D42 L12 L13 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:revind:v:50:y:2017:i:3:d:10.1007_s11151-016-9537-9