Input Price Discrimination by Resale Market
50 Pages Posted: 25 Jun 2018 Last revised: 6 Feb 2019
Date Written: December 20, 2018
This paper analyzes supply tariffs that discriminate between resale in different markets. In a setting with competing retailers that operate in multiple (independent or interdependent) markets, we show that, all else equal, the supplier wants to discriminate against resale in the market with the higher aggregate cross-seller diversion ratio. We find that discrimination can improve allocative efficiency and present sufficient conditions, involving the pass-through rates and the inverse market demand curvatures in the different markets, under which discrimination has positive effects on output and welfare. Our insights are relevant for the policy treatment of vertical restraints on online sales.
Keywords: price discrimination, vertical restraints, conduct parameters, pass-through rates, multi-product oligopoly
JEL Classification: D42, D43, L11, L12, L13, L42
Suggested Citation: Suggested Citation