Price Discrimination and Sequential Contracting in Monopolistic Input Markets
6 Pages Posted: 30 Nov 2013 Last revised: 30 Jul 2015
Date Written: October 9, 2014
This paper examines the welfare implication of banning price discrimination in the intermediate goods market in which a monopolistic supplier contracts with asymmetric downstream retailers. We demonstrate that the supplier has a strong incentive to manipulate interdependent demand structure through sequential contracting whether price discrimination is banned or not, and allowing price discrimination improves social welfare and consumer surplus when sequential contracting is implemented by the supplier.
Keywords: Monopolistic Input Market, Price Discrimination, Sequential Contracting
JEL Classification: D43, L14, L42
Suggested Citation: Suggested Citation