Input price discrimination with passive partial ownership

ABSTRACT

Passive partial ownership (PPO) is commonly practised in many industries. When operating profits of stock-owned firms decrease, stock-holding firms will increase output to reduce capital gain through owned firms’ stocks. In a vertically related market with downstream PPO, consumer and total surpluses when input price discrimination is allowed may be larger than when it is banned because PPO mitigates effects of reduction in output caused by higher input price.

KEYWORDS:

• Passive partial ownership
• input price discrimination
• vertical relationship
• competition policy

JEL CLASSIFICATION:

• D43
• L11
• L40
• G34

Acknowledgments

We are grateful to the editor and anonymous referee for their comments, which greatly improved this paper. The second author gratefully acknowledges the financial support of the Japan Society for the Promotion of Science (JSPS), KAKENHI Grant Numbers JP17H00959, JP19H01483, and JP20K01678. The usual disclaimer applies.

Disclosure statement

Tomomichi Mizuno receives the financial support of the Japan Society for the Promotion of Science (JSPS), KAKENHI Grant Numbers JP17H00959, JP19H01483, and JP20K01678. The other authors, Qing Hu and Junghyun Song, declare that no support, financial or otherwise, has been received from any organization that may have an interest in the submitted work.

Additional information

Funding

This work was supported by the Japan Society for the Promotion of Science [JP17H00959, JP19H01483, JP20K01678].