We 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 incen tive.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.

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This study considers a search market with an outside option and shows that entry may be insufficient. When a firm enters the search market, the price decreases, and consumers can search for more products, which increases the market demand and improves social welfare. However, firms do not internalize the effect, and insufficient entry can occur. Additionally, insufficient entry is likely to occur in a search market with low search costs and/or an attractive outside option, as these factors increase the socially optimal number of firms but decrease the firms’ profits.