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Differential Pricing in Intermediate Good Markets

12 Pages Posted: 25 Oct 2017  

Youping Li

East China University of Science and Technology (ECUST)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

This paper studies differential pricing by an upstream monopolist whose cost to supply the intermediate good differs across buyers in the downstream. It is shown that, different from demand‐based price discrimination, cost‐based differential pricing shifts production efficiently. If total output (and consumer welfare) is weakly increased under differential pricing as opposed to uniform pricing, as is true for weakly convex final market demand functions, social welfare is strictly improved. The analysis is extended to the case in which both the upstream monopolist's cost to serve the downstream firms and the downstream firms' cost to produce the final good differ.

Suggested Citation

Li, Youping, Differential Pricing in Intermediate Good Markets (September 2017). The Journal of Industrial Economics, Vol. 65, Issue 3, pp. 585-596, 2017. Available at SSRN: https://ssrn.com/abstract=3058449 or http://dx.doi.org/10.1111/joie.12140

Youping Li (Contact Author)

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

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