Working Paper: CEPR ID: DP3570
Authors: Tommaso Valletti
Abstract: This Paper addresses the question of third-degree price discrimination in input markets. I propose a solution that relies on a method that decomposes the upstream monopolist?s profit into two parts, one that depends on average input prices, and one that depends on their distribution. I am able to obtain rather general results, and, in the linear demand case, I obtain a full characterization of the equilibria in the two regimes of price discrimination and price uniformity, generalizing the findings of Yoshida (2000). Under reasonable assumptions, input price discrimination negatively affects both consumer surplus and total welfare.
Keywords: input price discrimination
JEL Codes: L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| input price discrimination (L11) | consumer surplus (D46) |
| input price discrimination (L11) | total welfare (D69) |
| manipulation of downstream costs (L11) | total welfare (D69) |
| different marginal costs (D40) | misallocation of production (D24) |
| misallocation of production (D24) | total welfare (D69) |
| price discrimination under concave demand (D40) | consumer surplus (D46) |
| price discrimination under concave demand (D40) | total welfare (D69) |
| correlation between cost parameters (C10) | welfare effects of discrimination (J79) |