Differential pricing, parallel trade, and the incentive to invest |
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Authors: | Tommaso M Valletti |
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Institution: | Imperial College London, Tanaka Business School, South Kensington Campus, London SW7 2AZ, United Kingdom CEPR, United Kingdom |
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Abstract: | I consider the case for imposing uniform pricing on a monopolist in a setting where markets can be segmented according to differences in marginal costs and/or consumer demand. I also analyze the ex ante impact on incentives to invest in R&D. I show how two opposite trade-offs arise. When differential pricing is demand-based, uniform pricing has good ex-post welfare properties but leads to lower investment ex ante. Conversely, when differential pricing is cost-based, uniform pricing has bad ex-post welfare properties but leads to higher investment ex ante. |
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Keywords: | L41 L51 K21 |
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