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European Journal of Law and Economics

, Volume 41, Issue 3, pp 537–557 | Cite as

Procompetitive dual pricing

  • Markus Dertwinkel-Kalt
  • Justus Haucap
  • Christian Wey
Article

Abstract

We analyze the procompetitive effects of dual pricing, that is, input market price discrimination. An upstream firm has an incentive to maintain competition downstream which is realized by selling at an advantageous price to an inefficient downstream firm when discrimination is possible while it would exit under uniform pricing. We augment the exit issue into existing frameworks of Katz (Am Econ Rev 77:154–167, 1987), DeGraba (Am Econ Rev 80:1246–1253, 1990), and Yoshida (Am Econ Rev 90:240–246, 2000) which allows us to show that price discrimination in intermediary goods markets tends to have positive effects on allocative, dynamic and productive efficiency, respectively. In contrast, a discrimination ban tends to facilitate exit of relatively inefficient firms, thereby strengthening downstream market concentration.

Keywords

Vertical market Price discrimination Dual pricing Online markets 

JEL Classification

L13 D43 K31 

Notes

Acknowledgments

A former version of this paper has been circulated under the title "Input Price Discrimination (Bans), Entry and Welfare". We like to thank Pio Baake, Stephane Caprice, Paul Heidhues, Lars-Hendrik Röller, Norbert Schulz, and Francisco Ruiz-Aliseda and two anonymous referees for helpful comments. This paper benefited from presentations at annual conferences held by EARIE, IIOC, and Verein für Socialpolitik as well as from comments received at the 2nd workshop on “Market Power in Vertically Related Markets” (Paris, 2011) and at the annual workshop of the Industrial Economics group of the Verein für Socialpolitik (Würzburg, 2013). Financial support by the German Science Foundation (DFG) for the research project “Market Power in Vertically Related Markets” is gratefully acknowledged.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Markus Dertwinkel-Kalt
    • 1
  • Justus Haucap
    • 1
  • Christian Wey
    • 1
  1. 1.Düsseldorf Institute for Competition Economics (DICE)Heinrich-Heine University DüsseldorfDüsseldorfGermany

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