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Discriminatory input pricing and strategic delegation

✍ Scribed by Pei-Cheng Liao

Book ID
102501811
Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
180 KB
Volume
31
Category
Article
ISSN
0143-6570

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✦ Synopsis

Abstract

This paper examines how discriminatory input pricing by an upstream monopolist affects the incentives that owners of downstream duopolists offer their managers. Regardless of the mode of competition (quantity or price), owners of downstream firms induce their managers to be more profit‐oriented and to behave less aggressively when the monopolist is allowed to price‐discriminate than when he charges a uniform price. If the monopolist price‐discriminates, managerial downstream firms always earn more than owner‐managed profit‐maximizing firms. However, if the monopolist charges a uniform price, managerial downstream firms earn more than profit‐maximizing counterparts under price competition and earn less under quantity competition. Copyright © 2009 John Wiley & Sons, Ltd.

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