Wholesale Price Discrimination: Innovation Incentives and Upstream Competition

Akgun, U; Chioveanu, Ioana

Abstract

In intermediate good markets where there are alternative supply sources, wholesale price discrimination may enhance innovation incentives downstream. We consider a vertical chain where a dominant …rm and a competitive fringe supply imperfect substitutes to duopoly retailers which carry both varieties. We show that a ban on price discrimination by the dominant supplier makes uniform pricing credible and reduces retailers' incentives to decrease the cost of acquiring the competitively supplied variety, leading to higher upstream pro…ts and lower downstream welfare. Our analysis complements existing results by identifying a novel channel through which wholesale price discrimination can improve dynamic market e¢ ciency. JEL: L13, L42 We thank the Editor, Daniel Spulber, a Coeditor, and two anonymous referees for valuable comments that improved the paper signi…cantly. This project has also bene…ted from discussions with Serge Moresi and Bob Stillman. Any remaining errors are our own.

Citation

Akgun, U., & Chioveanu, I. (2019). Wholesale Price Discrimination: Innovation Incentives and Upstream Competition. Journal of Economics and Management Strategy, 28(3), 510-519. https://doi.org/10.1111/jems.12284

• Journal Article Type: Article
• Acceptance Date: Jul 23, 2018
• Online Publication Date: Sep 25, 2018
• Publication Date: Sep 1, 2019
• Deposit Date: Mar 12, 2020
• Publicly Available Date: Mar 12, 2020
• Journal: Journal of Economics and Management Strategy
• Print ISSN: 1058-6407
• Electronic ISSN: 1530-9134
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 28
• Issue: 3
• Pages: 510-519
• DOI: https://doi.org/10.1111/jems.12284
• Keywords: Wholesale Price Discrimination; Supply Competition; Multiproduct Retailers; Innovation
• Public URL: https://nottingham-repository.worktribe.com/output/4132074
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/jems.12284
• Additional Information: Received: 2017-04-24; Accepted: 2018-07-23; Published: 2018-09-25