Input Price Discrimination Research Articles

The welfare effects of input price discrimination revisited

This paper revisits the welfare effects of input price discrimination in the canonical model in which an upstream monopolist, under linear pricing, sells an intermediate good to downstream Cournot competitors with different marginal costs. By leveling the downstream players, input price discrimination may have a positive output effect, with the magnitude depending on the convexity of final market demand and its rate of change. When demand is linear, concave, or convex with limited and nonincreasing convexity, welfare is reduced compared with uniform pricing. Instead, when there is sufficient and nondecreasing convexity—often observed in constant elasticity demand—price discrimination increases total welfare.

The Mode of Technology Licensing and Input Price Discrimination

The Mode of Technology Licensing and Input Price Discrimination

Input price discrimination in endogenous competition mode: comment

Input price discrimination in endogenous competition mode: comment

Input price discrimination with two-part tariffs and quantity competition

Input price discrimination with two-part tariffs and quantity competition

Input price discrimination and strategic inventory

AbstractWe consider a two‐period model with strategic inventory and explore the welfare implications of banning input price discrimination. We find that inventory incentive is stronger under input price discrimination. Under uniform pricing, an increase in an inventory of a firm equally lowers the rival's wholesale price. It expands the rival's production, suppresses the firm's output, and weakens the incentive. We also find that the weak incentive leads to higher quantity‐weighted average wholesale and retail prices. Therefore, allowing input price discrimination alleviates double marginalization and leads to higher consumer surplus and social welfare.

On banning price discrimination in input markets: downstream exclusion and contract type

On banning price discrimination in input markets: downstream exclusion and contract type

Input price discrimination: The role of pass-through

Input price discrimination: The role of pass-through

Input Price Discrimination, Differential Pricing, and Investment Generating Cost Difference

Input Price Discrimination, Differential Pricing, and Investment Generating Cost Difference

Strategic Input Price Discrimination with Horizontal Shareholding

Strategic Input Price Discrimination with Horizontal Shareholding

Does Product Quality Matter for Welfare Implications of Input Price Discrimination?

Does Product Quality Matter for Welfare Implications of Input Price Discrimination?

Input Price Discrimination, Demand Forms, And Welfare*

We analyse the effects of input price discrimination in the canonical model where an upstream monopolist sells to downstream firms with various degrees of efficiency. We first recast a series of existing results within our setting, extending previous findings related to discrimination in final‐goods markets to the case of discrimination in input markets. Then, we examine the impact of input price discrimination on welfare. A key determinant of the effects of input price discrimination corresponds to the sum of demand curvature and pass‐through elasticity. We provide examples relying on derived demands with constant curvature, including demands with constant pass‐through rates.

Input Price Discrimination, Two‐Part Tariffs and Bargaining*

I investigate the welfare effects of input price discrimination when an upstream supplier bargains over secret two‐part tariffs with two cost‐asymmetric downstream firms. I find that these welfare effects depend on the identity of the supplier's partner in negotiations after the ban. When the supplier bargains the common contract with the more cost‐efficient firm, then a ban on discrimination may increase welfare. In that case, there is below‐cost pricing in the upstream market despite strategic complementarity in the downstream market. When the supplier bargains the common contract with the less cost‐efficient downstream firm, banning discrimination always decreases welfare.

Input price discrimination and incentives for raising rivals’ costs

Input price discrimination and incentives for raising rivals’ costs

Input price discrimination, pricing contract and social welfare

In this paper, we introduce input price discrimination into vertical product differentiation model to analyze the impact of input price discrimination on social welfare. We find that the input price discrimination improves the supply of high-quality products in the market, and lead to the increase of consumer surplus. The effect of input price discrimination on social welfare is influenced by the pricing contract of input. When the price of input is determined by upstream firm, the input price discrimination reduces social welfare. While the input price discrimination increases social welfare when the price of input is determined by bargaining of upstream and downstream firms.

Input price discrimination can encourage downstream investment and increase welfare

This paper investigates the implications of input price discrimination when an upstream monopolist commits to prices before downstream firms make R&D investment and output decisions. We find that input price discrimination can stimulate downstream R&D investment and shift production efficiently relative to uniform pricing. Specifically, input price discrimination impedes investment when the investing firm is a technological leader, fosters investment when it is a laggard, and may improve welfare when investment allows the laggard to overtake the leader. An important policy implication of our results is that antitrust regulation that allows input price discrimination may contribute to technological catch-up.

A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting

A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting

Vertical cross‐ownership, input price discrimination, and social welfare

AbstractIn this paper, we analyze the impact of vertical cross‐ownership with input price discrimination on social welfare. A higher degree of product differentiation will raise industry profit, consumer surplus, and social welfare; under forward cross‐ownership, a higher degree of cross‐ownership has the same effect, in addition, it will reduce rival firm's profit and increase upstream firm's profit; however, under backward cross‐ownership, a higher degree of cross‐ownership has an opposite effect. Furthermore, under Cournot and Bertrand competition, forward cross‐ownership will incentivize downstream firms to produce more via a lower input price, achieving the above effect.

Input price discrimination under passive partial cross ownership

ABSTRACT Hu, Mizuno, and Song (Applied Economics Letters, 2021) compare the welfare effects of input price discrimination (IPD) and uniform input pricing (UIP) under passive partial ownership (PPO) where one downstream firm holds equity shares of its rival. This paper extends their setup to accommodate passive partial cross ownership (PCO) where each downstream firm holds equity shares of its rival. A common conclusion is that IPD improves welfare if the cost asymmetry is sufficiently low. Interestingly, this finding holds regardless of whether the more efficient firm is also the dominant partial shareholder. Indeed, it is found that the likelihood that IPD is welfare enhancing increases as firms become more asymmetric in terms of equity shares. However, the critical level of cost asymmetry differs under PPO and PCO, meaning that there are cases where IPD performs better in terms of social welfare under PCO but not under PPO, and vice versa. The main conclusion of this paper is that, compared to the PPO structure, PCO reduces the likelihood that IPD results in better welfare outcomes than UIP.

Correction to: Input price discrimination and horizontal shareholding

Correction to: Input price discrimination and horizontal shareholding

Input price discrimination and horizontal shareholding

Input price discrimination and horizontal shareholding