Input Price Discrimination When Buyers Operate in Multiple Markets

Posted by D. Daniel Sokol

Anil Arya, Ohio State University (OSU) - Fisher College of Business and Brian Mittendorf, Ohio State University (OSU) - Fisher College of Business analyze Input Price Discrimination When Buyers Operate in Multiple Markets.

ABSTRACT: This paper revisits third degree price discrimination when input buyers serve multiple product markets. Such circumstances are prevalent since buyers often use the same input to produce different outputs, and even homogenous outputs are routinely sold through different locations. The typical view is that price discrimination stifles efficiency (and welfare) by resulting in price concessions to less efficient firms. When buyers serve multiple markets, price discrimination leads to price breaks for firms in markets with lower demand. When lower demand markets also have less competition, price discrimination can provide welfare gains by shifting output to less competitive markets.