Input Price Discrimination, Demand Forms, and Welfare

35 Pages Posted: 13 Dec 2019 Last revised: 20 Apr 2021

See all articles by Germain Gaudin

Germain Gaudin

University of Freiburg - College of Economics and Behavioral Sciences

Romain Lestage

Central University of Finance and Economics

Date Written: April 2, 2021

Abstract

We analyse the effects of input price discrimination in the canonical model where an upstream monopolist sells to downstream firms with various degrees of efficiency. We first recast a series of existing results within our setting, extending previous findings related to discrimination in final-goods markets to the case of discrimination in input markets. Then, we examine the impact of input price discrimination on welfare. A key determinant of the effects of input price discrimination corresponds to the sum of demand curvature and pass-through elasticity. We provide examples relying on derived demands with constant curvature, including demands with constant pass-through rates.

Keywords: Price discrimination, Input markets, Vertical relations, Demand curvature, Pass-through rate

JEL Classification: D42, D43, L14, L42

Suggested Citation

Gaudin, Germain and Lestage, Romain, Input Price Discrimination, Demand Forms, and Welfare (April 2, 2021). Available at SSRN: https://ssrn.com/abstract=3488770 or http://dx.doi.org/10.2139/ssrn.3488770

Germain Gaudin (Contact Author)

University of Freiburg - College of Economics and Behavioral Sciences

Freiburg, D-79085
Germany

Romain Lestage

Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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