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Input price discrimination and incentives for raising rivals’ costs

Input price discrimination and incentives for raising rivals’ costs This research analyzes the effects of input price discrimination when downstream firms have incentives for raising rivals’ costs. In the model, an input monopolist chooses unit prices for the input sold to two downstream firms via either discriminatory pricing or uniform pricing. Results show that the more efficient firm has stronger incentives than the less efficient firm to undertake cost-raising activities. Relative to uniform pricing, the more efficient firm causes a smaller amount of cost increase to the rival firm under discriminatory pricing. In contrast, discriminatory pricing may induce the less efficient firm to make a greater amount of cost increase. We find that input price discrimination could benefit both consumers and downstream firms and hence is socially desirable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Input price discrimination and incentives for raising rivals’ costs

Chen, Chin-Sheng
The Japanese Economic Review , Volume OnlineFirst – Oct 29, 2022
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References (32)

Publisher
Springer Journals
Copyright
Copyright © Japanese Economic Association 2022. Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1007/s42973-022-00121-2
Publisher site
See Article on Publisher Site

Abstract

This research analyzes the effects of input price discrimination when downstream firms have incentives for raising rivals’ costs. In the model, an input monopolist chooses unit prices for the input sold to two downstream firms via either discriminatory pricing or uniform pricing. Results show that the more efficient firm has stronger incentives than the less efficient firm to undertake cost-raising activities. Relative to uniform pricing, the more efficient firm causes a smaller amount of cost increase to the rival firm under discriminatory pricing. In contrast, discriminatory pricing may induce the less efficient firm to make a greater amount of cost increase. We find that input price discrimination could benefit both consumers and downstream firms and hence is socially desirable.

Journal

The Japanese Economic Review – Springer Journals

Published: Oct 29, 2022

Keywords: Input price discrimination; Vertically related markets; Raising rivals’ costs; Welfare; D42; L13; L43

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