Differential Pricing, Parallel Trade, and the Incentive to Invest

16 Pages Posted: 3 Oct 2006

See all articles by Tommaso M. Valletti

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Abstract

I consider the case for imposing uniform pricing on a monopolist in a setting where markets can be segmented according to differences in marginal costs and/or consumer demand. I also analyze the ex ante impact on incentives to invest in R&D. I show how two opposite trade-offs arise. When differential pricing is demand-based, uniform pricing has good ex-post welfare properties but leads to lower investment ex ante. Conversely, when differential pricing is cost-based, uniform pricing has bad ex-post welfare properties but leads to higher investment ex ante.

Keywords: price discrimination, parallel trade, investment

JEL Classification: L41, L51, K21

Suggested Citation

Valletti, Tommaso M., Differential Pricing, Parallel Trade, and the Incentive to Invest. Journal of International Economics, Vol. 70, 2006. Available at SSRN: https://ssrn.com/abstract=934534

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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