Economic Analyses of Export Policies and Price Discrimination in Vertically-related Industries
Date Issued
2010
Date
2010
Author(s)
Chen, Chin-Sheng
Abstract
This dissertation analyzes the effects of vertical integration on export policies and the welfare effects of input price discrimination within a framework of vertically-related industries.
In Chapter 2 of the dissertation, we employ a successive oligopoly model that is widely used in the field of industrial organization to serve as the analytical framework, and assume that the output of a final good is for export. We re-examine the welfare implications of vertical integration in export-oriented industries. It is well known that if the total output of the final good increases after vertical integration, the social welfare will also increase. In this dissertation, it is found that, as the number of vertically-integrated firms increases, domestic exports may decrease, but the domestic welfare level can thus increase. Hence, the policy implication of vertical integration in relation to an export-oriented industry is very different from that for a non-export-oriented industry. In addition, we also examine the effects of vertical integration if there are foreign firms competing with the domestic firms in the foreign market or the domestic firms are also serving the domestic market. It is shown that the vertical integration, while reducing domestic exports, may not be advantageous to the domestic welfare.
In Chapter 3, we analyze the price decision of an upstream monopolist who produces and sells an intermediate good to a downstream industry where a chain store competes with many local firms. The input monopolist can choose either third-degree discriminatory pricing or uniform pricing. We compare the input prices and the levels of social welfare between the two pricing schemes. In a benchmark case, where the chain store is integrated backward, we find that, if the input monopolist adopts discriminatory pricing, it may charge more efficient local firms a lower input price. Moreover, price discrimination in the input market does not change the total output of the final good and increases production costs, but it can enhance social welfare due to a higher consumption benefit. The same conclusion can also be found in the case where the chain store is not integrated and also serves as a buyer in the input market. This finding is different from the well-known conclusion that price discrimination in final good markets is welfare-improving only if it can raise total output. In addition, this is also different from the conclusion that input price discrimination is adverse to social welfare due to its lower production efficiency.
In Chapter 4, we introduce a linear market with vertical relationship to analyze the welfare effect of input price discrimination. In the literature on price discrimination with an endogenous market boundary, it has been shown that social welfare is higher under discriminatory pricing than under uniform pricing as the market area of the former is larger than that of the latter (Holahan (1975)). This dissertation applies Holahan’s framework with a vertically-related industry to examine the welfare effect of price discrimination in an upstream market. We find that although the market area is larger and output is higher, social welfare is nonetheless necessarily lower under discriminatory pricing than under uniform pricing. Furthermore, we also show that this conclusion is valid for a general cost function of the downstream firms.
In Chapter 5, we conclude the dissertation and discuss the future extensions.
Subjects
Vertical integration
Export policies
Welfare
Third-degree price discrimination
Intermediate good market
Endogenous market
Type
thesis
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