Discriminatory Nonlinear Pricing, Fixed Costs, and Welfare in Intermediate-Goods Markets

Title data

Herweg, Fabian ; Müller, Daniel:
Discriminatory Nonlinear Pricing, Fixed Costs, and Welfare in Intermediate-Goods Markets.
In: International Journal of Industrial Organization. Vol. 46 (2016) . - pp. 107-136.
ISSN 0167-7187
DOI: https://doi.org/10.1016/j.ijindorg.2016.04.001

Official URL:

Abstract in another language

We investigate the welfare effects of third-degree price discrimination in input markets when nonlinear wholesale tariffs are feasible. After accepting their respective wholesale contracts, two downstream firms have to pay a fixed cost in order to become active in the downstream market. If the downstream firm with lower marginal cost has significantly higher fixed cost, uniform pricing leads to lower marginal wholesale prices for all downstream firms and thus higher quantities of the final product being produced. This in turn implies that banning price discrimination improves welfare and consumer surplus. If the downstream firm with lower marginal cost has only weakly higher (or even lower) fixed cost, banning price discrimination deteriorates welfare and consumer surplus.

Further data

Item Type:	Article in a journal
Refereed:	Yes
Keywords:	Fixed cost; Third-degree price discrimination; Two-part tariffs; Vertical relations
Institutions of the University:	Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy > Chair Economics VIII: International Competition Policy - Univ.-Prof. Dr. Fabian Herweg Faculties Faculties > Faculty of Law, Business and Economics Faculties > Faculty of Law, Business and Economics > Department of Economics Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences 300 Social sciences > 330 Economics
Date Deposited:	01 Dec 2017 08:31
Last Modified:	15 Sep 2022 07:09
URI:	https://eref.uni-bayreuth.de/id/eprint/40776