Input Price Discrimination and Upstream R&D Investments
Review of Industrial Organization, 2020, vol. 57, issue 1, No 4, 85-106
Abstract We study the welfare effects of input price discrimination when an upstream firm that supplies two cost-asymmetric downstream firms undertakes R&D investments. With observable two-part tariffs, banning discrimination always decreases R&D levels and long-run welfare. Under unobservable two-part tariffs, banning discrimination may increase or decrease R&D levels—depending on the degree of downstream cost-asymmetry; but it always decreases long-run welfare. Thus, with unobservable two-part tariffs, a ban on input price discrimination is detrimental to welfare even when its effect on upstream R&D investments is positive.
Keywords: Input price discrimination; R&D investments; Vertical contracting; Welfare (search for similar items in EconPapers)
JEL-codes: D43 K21 L11 L42 (search for similar items in EconPapers)
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Working Paper: Input price discrimination and upstream R&D investments (2017)
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