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Exclusionary Discounts

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  • Janusz Ordover

    ()
    (New York University and Competition Policy Associates)

  • Greg Shaffer

    ()
    (Simon School of Business, University of Rochester)

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    Abstract

    We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offeres its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.

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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-13.pdf
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    Bibliographic Info

    Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 07-13.

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    Length: 38 pages
    Date of creation: May 2007
    Date of revision:
    Handle: RePEc:ccp:wpaper:wp07-13

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    Related research

    Keywords: Exclusive dealing; bundling; market-share discounts; all-units discounts;

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