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Strategic Delays of Delivery, Market Separation and Demand Discrimination

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  • Eric Avenel
  • Sebastien Mitraille

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Abstract

We show that an adequate choice of delays to deliver a durable good allows a monopolist to soften the intra-brand price competition between his two retailers on two different markets, when consumers suffer a switching cost to buy on the market where they are not located. To prevent each retailer from selling on both markets, the upstream producer increases the delay of delivery on the market where the willingness to pay is the lowest. It therefore separates the markets across time, by orientating consumers to the appropriate downstream retailer. Consumers pay their highest valuation, and a price differential higher than the switching cost persists in equilibrium. We discuss the application of our findings to the European car market.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp112.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 04/112.

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Length: 30 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:bri:cmpowp:04/112

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Keywords: durable good; switching cost; discrimination; intrabrand competition; European car market;

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  1. Simon P. Anderson & Victor Ginsburgh, 1994. "Price discrimination via second-hand markets," ULB Institutional Repository 2013/1719, ULB -- Universite Libre de Bruxelles.
  2. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  3. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
  4. Kuhn, Kai-Uwe, 1998. "Intertemporal Price Discrimination in Frictionless Durable Goods Monopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 101-14, March.
  5. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
  6. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
  7. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
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