Price Discrimination in Input Markets: Quantity Discounts and Private Information

Herweg, Fabian; Müller, Daniel

doi:10.1111/ecoj.12061

Cited by 39 publications

(23 citation statements)

References 28 publications

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“…It is a common presumption that whenever a ban on input price discrimination increases (decreases) firm's incentives to invest in R&D, it also increases (decreases) welfare in the longrun. Whereas the existing literature shows that this presumption is indeed true for the case of downstream R&D investments (DeGraba, 1990;Inderst & Valletti, 2009;Herweg & Müller, 2014), we show that it may not necessarily be true for the case of upstream R&D investments.…”

Section: Introductioncontrasting

confidence: 70%

“…By considering the case of downstream R&D investments, DeGraba (1990), Inderst & Valletti (2009) and Herweg & Müller (2014) show that a ban on input price discrimination increases or decreases welfare in the long-run depending on whether it increases or decreases downstream firm's incentives to invest in R&D. Our analysis suggests that certain conclusions regarding the desirability of practicing input price discrimination when downstream firms engage in R&D may not carry over to the case where it is the upstream supplier that invests in cost reductions.…”

Section: Banning Input Price Discriminationmentioning

confidence: 99%

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Input Price Discrimination and Upstream R&D Investments

Pinopoulos

2019

Rev Ind Organ

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Section: Introductioncontrasting

confidence: 70%

Section: Banning Input Price Discriminationmentioning

confidence: 99%

Input Price Discrimination and Upstream R&D Investments

Pinopoulos

2019

Rev Ind Organ

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“…10 It can be shown that our qualitative results are robust in a setting where P q q ( , ) = Inderst and Shaffer (2009), the two-part tariff analysis in Arya and Mittendorf (2010), and Herweg and Müller (2014). 12 When downstream firms are producers these can also be interpreted as the marginal cost of converting one unit of upstream input into one unit of downstream product.…”

mentioning

confidence: 83%

“…A different stream of literature explores discriminatory nonlinear prices. See, for instance, Inderst and Shaffer (), the two‐part tariff analysis in Arya and Mittendorf (), and Herweg and Müller ().…”

mentioning

confidence: 99%

Wholesale price discrimination: Innovation incentives and upstream competition

Akgun¹,

Chioveanu

2018

Economics Manag Strategy

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In intermediate good markets where there are alternative supply sources, wholesale price discrimination may enhance innovation incentives downstream. We consider a vertical chain where a dominant firm and a competitive fringe supply imperfect substitutes to duopoly retailers which carry both varieties. We show that a ban on price discrimination by the dominant supplier makes uniform pricing credible and reduces retailers’ incentives to decrease the cost of acquiring the competitively supplied variety, leading to higher upstream profits and lower downstream welfare. Our analysis complements existing results by identifying a novel channel through which wholesale price discrimination can improve dynamic market efficiency.

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“…Consumers face a monopoly price and the monopoly profits are extracted by the party who has all the bargaining power. 10 D has all the bargaining power. The other extreme is with a powerful downstream firm that makes take-it-or-leave-it offers to the upstream party.…”

mentioning

confidence: 99%

Asymmetric information in a bilateral monopoly

Pavlou¹

2016

JDG

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This paper explores the role of the asymmetry in information in business to business (B2B) transactions. In a vertical setting with successive monopolies we present the equivalence that holds under complete information, that is, the profitability of the powerful party does not depend on its position in the industry and we investigate how potential information advantages affect this relationship. We demonstrate that under asymmetric information this equivalence breaks down and a firm that is positioned in the downstream sector reduces more effectively the information rents that it has to sacrifice for a truthful reporting, but the consumers remain indifferent. Under wholesale price contracts consumers prefer the less informed party to be at the downstream level since the excessive pricing distortion is less intense. Moreover, if second degree of price discrimination is not allowed then the principal prefers to be at the upstream level of production and consumers are better off in this case which comes in contrast to our previous results.2010 Mathematics Subject Classification. Primary: 91A28, 91A80.

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Price Discrimination in Input Markets: Quantity Discounts and Private Information

Cited by 39 publications

References 28 publications

Input Price Discrimination and Upstream R&D Investments

Input Price Discrimination and Upstream R&D Investments

Wholesale price discrimination: Innovation incentives and upstream competition

Asymmetric information in a bilateral monopoly

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