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Input price discrimination and upstream R&D investments

Ioannis Pinopoulos

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: We study the welfare effects of input price discrimination when an upstream supplier that secretly contracts with two cost-asymmetric downstream firms undertakes R&D investments. We show that a ban on input price discrimination increases (decreases) the level of upstream R&D investments when downstream cost-asymmetry is relatively low (high). Nevertheless, we find that welfare always decreases after the ban. Thus, input price discrimination should be welcomed rather than prohibited even when it stifles the upstream supplier’s incentives to engage in cost-reduction activities.

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)
New Economics Papers: this item is included in nep-com and nep-law
Date: 2017-06, Revised 2017-06
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