Why do suppliers charge larger buyers lower prices?

The phenomenon of input suppliers charging larger buyer firms, relative to smaller buyer firms, lower prices is commonly explained in terms of supplie r economies of scale, supplier competition for larger buyers, and the large r bargaining power of larger buyers. This paper provides an alternative exp lanation. and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers c an sustain in their output market. This result also provides a new mechanis m through which a ban on price discrimination by input suppliers may lower consumer welfare.