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Exclusionary Pricing and Rebates When Scale Matters

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  • Karlinger, Liliane
  • Motta, Massimo

Abstract

We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers. The incumbent disposes of an installed base, while the entrant has a network of size zero at the outset, and needs to attract a critical mass of buyers to operate. We analyze different price schemes (uniform pricing, implicit price discrimination - or rebates, explicit price discrimination) and show that the schemes which - for given market structure - induce a higher level of welfare are also those under which the incumbent is more likely to exclude the rival.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6258.

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Date of creation: Apr 2007
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Handle: RePEc:cpr:ceprdp:6258

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Keywords: abuse of dominance; exclusionary practices; network industry; price discrimination; rebates;

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References

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  1. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers 96008, Stanford University, Department of Economics.
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  8. John Vickers, 2005. "Abuse of Market Power," Economic Journal, Royal Economic Society, vol. 115(504), pages F244-F261, 06.
  9. Jordi Gual & Anne Perrot & Michele Polo & Patrick Rey & Klaus Schmidt & Rune Stenbacka, 2006. "An Economic Approach to Article 82," CPI Journal, Competition Policy International, vol. 2.
  10. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
  11. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-72, December.
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  14. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
  15. Fumagalli, Chiara & Motta, Massimo, 2001. "Buyers' Coordination and Entry," CEPR Discussion Papers 2908, C.E.P.R. Discussion Papers.
  16. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Chiara Fumagalli & Massimo Motta, 2010. "A Simple Theory of Predation," CSEF Working Papers 255, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
  3. Liliane Karlinger, 2009. "Vertical Relations in the Presence of Competitive Recycling," Vienna Economics Papers 0910, University of Vienna, Department of Economics.
  4. Stefano Colombo, 2010. "Discriminatory Prices, Predation and Signal-Jamming in a Horizontal Differentiation Model," Journal of Industry, Competition and Trade, Springer, vol. 10(2), pages 87-104, June.
  5. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
  6. Colombo, Stefano, 2009. "On the Effects of Selective Below-Cost Pricing in a Vertical Differentiation Model," Economics Discussion Papers 2009-25, Kiel Institute for the World Economy.
  7. Muriel Fadairo & Jianyu Yu, 2014. "Economic Rationales of Exclusive Dealing ; Empirical Evidence from the French Distribution Networks," Working Papers 1405, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  8. Eberhard Feess & Ansgar Wohlschlegel, 2010. "All-Unit Discounts and the Problem of Surplus Division," Review of Industrial Organization, Springer, vol. 37(3), pages 161-178, November.

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