Differential Pricing, Parallel Trade, and the Incentive to Invest
16 Pages Posted: 3 Oct 2006
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: Suggested Citation