A Note on Third Degree Price Discrimination in Intermediate Good Markets

Youping Li

This note studies third degree price discrimination in intermediate good markets. I show that whether a more efficient downstream firm is charged a higher or lower price than a less efficient firm depends on the shape of the demand function. Different from the case in which final market demand is linear, the usual assumption in the literature, constant elasticity demand, for example, results in a more efficient firm's receiving a discount.