Input Price Discrimination with Horizontal Shareholding

Antitrust laws in many countries prohibit the setting of differential prices across buyers who compete against each other. In this paper, we consider a setting in which a downstream manufacturer holds non-controlling stakes in its rival and both buy input from an unptream monopolist. We find that under price discrimination a lower price is charged to the firm that holds the rival's shares so production is shifted toward it. This dampens the anticompetitive effects of horizontal shareholding and results in higher output, lower final good price, and improved consumer, producer and social welfare relative to uniform pricing.