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Comment on ‘A Note on N. Economides: The Incentive for Non-Price Discrimination by an Input Monopolist

By Nicholas Economides

Abstract

for non-price discrimination of a monopolist in an input market who also sells in an oligopoly downstream market through a subsidiary. Bergman alludes to various industrial structures where a monopolist can extract all potential rent from a single stage of production. However, Economides (1998) focuses on the most common case when the downstream market is oligopolistic, in which it is well understood (and Bergman agrees) that a monopolist participating in a downstream market is generally unable to extract all potential rent from the monopolized stage of production. Moreover, the focus of the Economides (1998) paper was in regulated industries, especially in the telecommunications sector, where the price that the monopolist quotes to downstream firms is set below the unregulated monopoly level. Thus, almost all the criticisms advanced by Bergman are not relevant to Economides (1998). Bergman (2000) makes a correct criticism of Proposition 3 in Economides (1998). This proposition is proved in Economides (1998) for three cases: (i) when the monopolist has the same costs as the independents; (ii) when the monopolist has a cost advantage, and (iii) when the monopolist has a cost disadvantage. The last case is proved as long as the independents do not go out of business when they are faced with increased costs equal to twice the cost disadvantage of the monopolist (that is, at r 5 2x, where r is the discriminatory raise in the costs of the monopolist’s rivals and x is the cost disadvantage of the monopolist). Bergman correctly points out that, in the exceptional case when the monopolist is severel

Year: 2000
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