Friday, June 8, 2018
Ioannis N. Pinopoulos (Department of Economics, University of Macedonia) offers Input price discrimination with secret linear contracting.
ABSTRACT: We study the welfare effects of input price discrimination when an unconstrained upstream supplier uses linear contracts that are unobservable by downstream firms. With homogeneous final goods, we show that banning input price discrimination decreases welfare. This finding is in contrast to that in the existing literature that considers observable linear contracts. When final goods are sufficiently differentiated, it is shown that banning input price discrimination increases welfare. This result is in contrast to that in the existing literature that considers unobservable two-part tariff contracts..