The welfare effects of third‐degree price discrimination in intermediate good markets: the case of bargaining

Abstract

This article examines the welfare effects of third‐degree price discrimination by a monopolist selling to downstream firms with bargaining power. One of the downstream firms (the “chain store”) can integrate backward at lower cost than rivals. Bargaining powers also depend on disagreement profits, bargaining weights, and concession costs. If the chain's integration threat is not credible, price discrimination reduces the input price charged symmetric downstream firms and often reduces the average input price charged asymmetric downstream firms.

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