ing from the form the two-part lease may take, it is now apparent that we cannot simply conclude that the mere observation of such marketing arrangements supports the conclusion that they are inherently price discriminatory. All we can conclude, as Director and Levi [5] concluded long ago, is that this form of lease results in different customers paying different prices and, we hastily add, that these different prices may or may not be for effectively similar items. Obviously, price comparisons for purposes of price discrimination are meaningless unless the possibility of dissimilarities in the items purchased is effectively removed. 13 For the case of competitive two part leasing, given by (5), all durable users are required to make per period payments that fully recover the per period opportunity costs of being served. This conclusion follows regardless of whether there are observed differences in the per period prices paid by various users. For example, suppose there are competing uses, i andj, for units of the durable that are manifested in different rates of utilization, i.e., different amounts of per period services utilized per unit of the durable. The corresponding two part rental fee schedules are then pi, p,i, and p,,r p, where the respective marginal costs of serving each of the uses are mc, and mcj. In this case, one would observe payments that differ with intensity of use from a variable rental arrangement. Yet, when these prices are competitively set as in (5), the ratio of price to marginal cost, where the latter fully reflects the cost of serving each particular use, is unity across all uses. This conclusion also holds in present value terms: all users pay the same price for a unit of the durable, notably C, the unit cost of production. Again, we cannot conclude that price discrimination is inherently afoot by merely observing these different per period prices paid by different customers. The possibility that a monopolist can set discriminatory prices cannot, of course, be ruled out. For this result, however, the required conditions are familiar and remain independent of the mere observed existence of two-part rental arrangements. Thus, when the two-part rental rates are set monopolistically, the ratios of per period, and present value, price to marginal cost do depart from unity, just as in the familiar nondurable good case. However, as we noted earlier, the intermediate monopolist has the profit incentive to achieve the full vertically integrated solution and therefore seeks a set of intermediate good prices that replicate the forward integrated profit solution at the input market level. To satisfy this requirement, we initially focus on solving for the set of prices that permit obtaining product market monopoly profitability at the input market stage. As noted above, the monopolist may need to set more prices than required to achieve efficient utilization of the good in question (unless alternate vertical controls, as noted below, are implemented). For example, the intermediate monopolist might adopt full-line-forcing prices if only the intermediate good prices are controlled. From (1), the required full-line prices are: 13. This point is clarified at length by Demsetz [4] in his discussion of price discrimination within the joint supply context. This content downloaded from 207.46.13.180 on Thu, 08 Sep 2016 04:10:13 UTC All use subject to http://about.jstor.org/terms METERED TIES, EFFICIENCY, AND PRICE DISCRIMINATION 81
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Oct 2, 2015
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