Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination

Chen, Junlin; Mukherjee, Arijit; Zeng, Chenhang

Abstract

We study social efficiency of entry in the presence of downstream cost asymmetry and upstream price discrimination. We show that entry is excessive when the entrants are highly inefficient, and it is insufficient when either the entrants are efficient or their inefficiency is low. The results are in sharp contrast to the existing literature considering upstream uniform pricing (Cao, H., and L. F. S. Wang. 2020. "Social Efficiency of Entry in a Vertically Related Industry Revisited."Economics Letters 129. Art. no. 109200), as discriminatory pricing alters the relative strengths of the business-stealing, business-creation and production-(in)efficiency effects.

Citation

Chen, J., Mukherjee, A., & Zeng, C. (2023). Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination. BE Journal of Theoretical Economics, 23(1), 223-243. https://doi.org/10.1515/bejte-2021-0069

• Journal Article Type: Article
• Acceptance Date: Jan 9, 2022
• Online Publication Date: Mar 3, 2022
• Publication Date: 2023-01
• Deposit Date: Jan 10, 2022
• Publicly Available Date: Mar 4, 2023
• Journal: B.E. Journal of Theoretical Economics
• Electronic ISSN: 1935-1704
• Publisher: De Gruyter
• Peer Reviewed: Peer Reviewed
• Volume: 23
• Issue: 1
• Pages: 223-243
• DOI: https://doi.org/10.1515/bejte-2021-0069
• Keywords: excessive entry; insufficient entry; vertical market; price discrimination
• Public URL: https://nottingham-repository.worktribe.com/output/7220216
• Publisher URL: https://www.degruyter.com/document/doi/10.1515/bejte-2021-0069/html