Input Price Discrimination, Demand Forms, and Welfare

Germain Gaudin, Romain Lestage

Research output: Working paperResearch

Abstract

In this paper, we analyse the effects of input price discrimination by an upstream monopolist selling to firms with various degrees of efficiency. When downstream markets are independent, we first study whether the upstream monopolist has an incentive to reduce or to increase the relative cost difference amongst downstream firms. Then, we examine the impact of input price discrimination on output and welfare. A key determinant of the effects of input price discrimination on prices, output, and welfare is the sum of demand curvature and pass-through elasticity. We apply our findings to the set of demand forms with constant pass-through rates, as well as other demand forms. We also discuss the cases of demand asymmetries across markets and price competition downstream.
Original languageEnglish
PublisherSSRN: Social Science Research Network
Number of pages36
DOIs
Publication statusPublished - 26 Nov 2019

Keywords

  • Price discrimination
  • Input markets
  • Vertical relations
  • Demand curvature
  • Pass-through rate

Cite this

Gaudin, Germain ; Lestage, Romain. / Input Price Discrimination, Demand Forms, and Welfare. SSRN: Social Science Research Network, 2019.
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Input Price Discrimination, Demand Forms, and Welfare. / Gaudin, Germain ; Lestage, Romain.

SSRN: Social Science Research Network, 2019.

Research output: Working paperResearch

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Gaudin G, Lestage R. Input Price Discrimination, Demand Forms, and Welfare. SSRN: Social Science Research Network. 2019 Nov 26. https://doi.org/10.2139/ssrn.3488770