Input Price Discrimination and Allocation Efficiency

This research examines the effects of input price discrimination on allocation efficiency and social welfare. Instead of assuming constant marginal costs, we allow downstream firms to produce under increasing marginal costs. When downstream firms operate in separate markets, even though total output...

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Bibliographic Details
Published in:	Review of industrial organization Vol. 60; no. 1; pp. 93 - 107
Main Author:	Chen, Chin-Sheng
Format:	Journal Article
Language:	English
Published:	New York Springer US 01-02-2022 Springer Nature B.V
Subjects:	Allocation Companies Discrimination Economics Economics and Finance Efficiency Industrial Organization Marginal costs Microeconomics Prices Production costs Profits Social desirability Social welfare Tariffs Input price discrimination Diminishing-marginal-return technology D42 Welfare Increasing marginal cost L43 L13
Online Access:	Get full text
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Summary:	This research examines the effects of input price discrimination on allocation efficiency and social welfare. Instead of assuming constant marginal costs, we allow downstream firms to produce under increasing marginal costs. When downstream firms operate in separate markets, even though total output remains unchanged, consumer surplus and social welfare could be greater under discriminatory pricing than under uniform pricing. Moreover, the social desirability of input price discrimination can still hold true when downstream firms compete either in Cournot or Bertrand fashion.
ISSN:	0889-938X 1573-7160
DOI:	10.1007/s11151-021-09830-1