*The authors thank the Editor, two anonymous referees, John Christensen, Peter Christensen, John Fellingham, Hans Frimor, Bjorn Jorgensen, Carolyn Levine, Thomas Pfeiffer, Stefan Reichelstein, David Sappington, Doug Schroeder and Dae-Hee Yoon for helpful comments and suggestions. Anil Arya gratefully acknowledges financial assistance from the John J. Gerlach Chair.
INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS*
Article first published online: 24 DEC 2010
© 2010 The Authors. The Journal of Industrial Economics © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 58, Issue 4, pages 846–867, December 2010
How to Cite
ARYA, A. and MITTENDORF, B. (2010), INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS. The Journal of Industrial Economics, 58: 846–867. doi: 10.1111/j.1467-6451.2010.00440.x
- Issue published online: 24 DEC 2010
- Article first published online: 24 DEC 2010
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.