Bru, L., R. Faulí-Oller and J. Sandonís
SERIEs – 2.2 (2011): 217-231.
Keywords: Price discrimination, input markets
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.