Price Discrimination in Input Markets When Retailers Have Replacement Threats: Empirical Evidence

46 Pages Posted: 7 Jul 2020 Last revised: 31 Aug 2020

See all articles by Sylvia Hristakeva

Sylvia Hristakeva

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: September 12, 2019

Abstract

Price discrimination in input markets may be driven by differences in buyers’ (i) demands, (ii) costs, or (iii) ‘replacement threats,’ in which a buyer obtains favorable pricing by threatening to source an input from a competitor. I analyze the importance of differences in buyers’ replacement threats for explaining differences in terms of wholesale trade. The empirical application uses data from the U.S. yogurt market. I find that differences in replacement threats are an important determinant of inferred input-market price discrimination. Results suggest that ‘smaller’ buyers, i.e. retailers with fewer products offered and lower revenues in neighboring markets, benefit relatively more from profitable replacement threats.

Suggested Citation

Hristakeva, Sylvia, Price Discrimination in Input Markets When Retailers Have Replacement Threats: Empirical Evidence (September 12, 2019). Available at SSRN: https://ssrn.com/abstract=3625706 or http://dx.doi.org/10.2139/ssrn.3625706

Sylvia Hristakeva (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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