The Welfare Effect of Input Price Discrimination with Horizontally Differentiated Final Products

Chan KIm and Jong-Hee Hahn
Additional contact information
Chan KIm: School of Economics, Yonsei University

No 2018rwp-117, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: We analyze the welfare effect of input price discrimination in a horizontally differentiated final-goods market. Previous studies assuming downstream firms competing with homogeneous goods have shown that input price discrimination lowers social welfare by reducing production efficiency. On the other hand, Hahn and Kim(2018) recently showed that input price discrimination can improve social welfare by increasing consumption and production efficiencies when the final-goods market is vertically or horizontally differentiated and consumers have heterogeneous preferences for the products. In contrast, this paper shows that even if the final goods are spatially differentiated, input price discrimination always reduces social welfare as long as all consumers participate and the participation constraint is binding in the middle of the consumer distribution in equilibrium. This result highlights that the welfare effect of input price discrimination in the differentiated final-goods market critically depends on the type of consumer participation constraint, which provides useful implications for competition policy towards the third-degree price discrimination in intermediate-goods markets.

Keywords: horizontal differentiation; input market; price discrimination; competition policy; Hotelling model JEL Classification: L11; L13 (search for similar items in EconPapers)
Pages: 16pages
Date: 2018-03
New Economics Papers: this item is included in nep-com
References: Add references at CitEc
Citations:

Downloads: (external link)
http://121.254.254.220/repec/yon/wpaper/2018rwp-117.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:yon:wpaper:2018rwp-117

Access Statistics for this paper

More papers in Working papers from Yonsei University, Yonsei Economics Research Institute Contact information at EDIRC.
Bibliographic data for series maintained by YERI ().