Input third-degree price discrimination by congestible facilities

This paper studies third-degree price discrimination by transport facilities, such as airports and seaports, which sell access to the infrastructure as a necessary input for downstream production. These facilities are prone to congestion –which makes downstream markets interrelated– and their ownership structure is diverse, varying from public (domestic welfare maximizing) to private (profit maximizing). We show that input price discrimination by a private supplier can increase aggregate output and increase welfare in a setting where, in absence of congestion, output does not change and welfare is reduced when price discrimination is allowed. Therefore, the presence of negative consumption externalities enlarges the extent to which input price discrimination is desirable. We also analyze the effects of price discrimination by a public facility and describe the conditions under which banning input price discrimination is efficient for both types of ownership forms. We argue that there is a limited scope for this to occur, which suggests that the current practice of enforcing a broad ban on input price discrimination that covers congestible facilities with different ownership forms may have to be revised.