Input Price Discrimination, Two-Part Tariffs and Bargaining*

I investigate the welfare effects of input price discrimination when an upstream supplier bargains over secret two-part tariffs with two cost-asymmetric downstream firms. I find that these welfare effects depend on the identity of the supplier's partner in negotiations after the ban. When the supplier bargains the common contract with the more cost-efficient firm, then a ban on discrimination may increase welfare. In that case, there is below-cost pricing in the upstream market despite strategic complementarity in the downstream market. When the supplier bargains the common contract with the less cost-efficient downstream firm, banning discrimination always decreases welfare. © 2022 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd