Input price discrimination in the presence of downstream vertical differentiation

Duarte Brito, Markos Tselekounis, Helder Vasconcelos

Research output: Contribution to journalArticle

Abstract

This paper investigates the competitive effects of input price discrimination (IPD) in a setting in which an upstream monopolist produces an essential input supplied to the downstream market where there is competition between two vertically differentiated retailers. Two different input pricing regimes are investigated: (i) the uniform pricing regime, in which third-degree input price discrimination is prohibited; and (ii) a discriminatory pricing regime, under which the upstream monopolist may charge different prices to the two downstream firms. We find that despite favoring the low-quality firm, IPD is welfare enhancing if and only if the quality gap is sufficiently high.

Original languageEnglish
Article number108622
JournalEconomics Letters
Volume184
DOIs
Publication statusPublished - 1 Nov 2019

Keywords

  • Input price discrimination
  • Vertical differentiation

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