Input Price Discrimination in Endogenous Competition Mode

We analyze the endogenous choice of competition mode when asymmetric retailers engage in price discrimination and uniform pricing with upstream monopoly via a linear wholesale contract. In contrast to previous results, if the cost difference is sufficiently large between asymmetric retailers, choosing a price contract for the efficient retailer and choosing a quantity contract for the inefficient retailer are implemented under both price discrimination and uniform pricing rules, while Cournot competition is sustained if the cost difference is sufficiently small. Although similar endogenous choice of (a)symmetric competition in equilibrium can be achieved in both pricing rules, social welfare, producer and consumer surpluses are higher under price discrimination than under uniform pricing unless the cost difference is small.