Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, January 11, 2018

Differential Pricing in Intermediate Good Markets

Youping Li, East China University of Science and Technology (ECUST) studies Differential Pricing in Intermediate Good Markets.

ABSTRACT: This paper studies differential pricing by an upstream monopolist whose cost to supply the intermediate good differs across buyers in the downstream. It is shown that, different from demand‐based price discrimination, cost‐based differential pricing shifts production efficiently. If total output (and consumer welfare) is weakly increased under differential pricing as opposed to uniform pricing, as is true for weakly convex final market demand functions, social welfare is strictly improved. The analysis is extended to the case in which both the upstream monopolist's cost to serve the downstream firms and the downstream firms' cost to produce the final good differ.

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