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Most-Favored-Customer Protection versus Price Discrimination over Time

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  • Png, I P L

Abstract

How should a seller price capacity that has no salvage value to heterogeneous customers whose valuations are private information? There are two periods, and the seller cannot precommit to prices in the later period. One option is price discrimination: first price high, then discount later if excess capacity remains. By offering most-favored-customer protection, the seller can charge more in advance, but will leave capacity unsold with positive probability. The author favors the most-favored-customer protection when capacity is large and leans toward price discrimination when customers are more uncertain about the degree of excess demand in the first period. Copyright 1991 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 99 (1991)
Issue (Month): 5 (October)
Pages: 1010-28

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Handle: RePEc:ucp:jpolec:v:99:y:1991:i:5:p:1010-28

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Web page: http://www.journals.uchicago.edu/JPE/

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Cited by:
  1. Gilbert, Richard & Klemperer, Paul, 1993. "An Equilibrium Theory of Rationing," CEPR Discussion Papers 805, C.E.P.R. Discussion Papers.
  2. Fiona Scott Morton, 1996. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," NBER Working Papers 5717, National Bureau of Economic Research, Inc.
  3. Xu, Frances Zhiyun, 2011. "Optimal best-price policy," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 628-643, September.
  4. Tom S. Lee & I.P.L. Png, 2004. "Loss Leaders: An Indirect Empirical Test," Industrial Organization 0401008, EconWPA.
  5. Lee, Khai Sheang & Ng, Irene C. L., 2001. "Advanced sale of service capacities: a theoretical analysis of the impact of price sensitivity on pricing and capacity allocations," Journal of Business Research, Elsevier, vol. 54(3), pages 219-225, December.
  6. Spier, Kathryn E., 2001. "The Use of “Most-Favored-Nation†Clauses in Settlement of Litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt7hm4d39g, Berkeley Olin Program in Law & Economics.

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