Market power, price discrimination, and allocative efficiency in intermediate-goods markets

Inderst, Roman and Shaffer, Greg (2009) Market power, price discrimination, and allocative efficiency in intermediate-goods markets. The RAND Journal of Economics, 40 (4). pp. 658-672. ISSN 1756-2171

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Abstract

We consider a monopolistic supplier's optimal choice of two-part tariff contracts when downstream firms are asymmetric. We find that the optimal discriminatory contracts amplify differences in downstream firms' competitiveness. Firms that are larger—either because they are more efficient or because they sell a superior product—obtain a lower wholesale price than their rivals. This increases allocative efficiency by favoring the more productive firms. In contrast, we show that a ban on price discrimination reduces allocative efficiency and can lead to higher wholesale prices for all firms. As a result, consumer surplus, industry profits, and welfare are lower.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Responsible Business Regulation Group
Depositing User:	Nicola Secker
Date Deposited:	01 Apr 2011 08:06
Last Modified:	10 Jan 2024 01:21
URI:	https://ueaeprints.uea.ac.uk/id/eprint/27813
DOI:	10.1111/j.1756-2171.2009.00083.x

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