Abstract
We analyze third degree price discrimination by an upstream monopolist to a continuum of heterogeneous downstream firms. The novelty of our approach is to recognize that customizing prices may be costly. As a consequence, partial price discrimination arises in equilibrium; in particular, we show that inefficient downstream firms receive personalized prices whereas efficient firms are charged a uniform price. The extreme cases of complete price discrimination and uniform price arise in our setting as particular cases, depending on the cost of customizing prices.
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We thank the editor, Pedro Mira and two anonymous referees for very helpful advice. We also thank Aleix Calveras, Daniel Cardona-Coll, María Paz Espinosa, Angel Hernando, Inés Macho-Stadler, David Pérez-Castrillo and Juana Santamaría for their comments. Financial support from SEJ 2004-02172, SEJ 2007-67895, SEJ 2007-62656, FEDER funds and the IVIE is gratefully acknowledged.
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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License (https://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Bru, L., Faulí-Oller, R. & Sandonís, J. Partial price discrimination by an upstream monopolist. SERIEs 2, 217–231 (2011). https://doi.org/10.1007/s13209-010-0030-7
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DOI: https://doi.org/10.1007/s13209-010-0030-7