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Exclusionary Pricing and Rebates When Scale Matters

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Author Info
Karlinger, Liliane
Motta, Massimo

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

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany. [Downloadable!]
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    Other versions:
  3. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Blackwell Publishing, vol. 41(4), pages 335-59, December. [Downloadable!] (restricted)
    Other versions:
  4. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December. [Downloadable!] (restricted)
  5. Gual, Jordi & Hellwig, Martin F. & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82," Discussion Papers in Economics 745, University of Munich, Department of Economics. [Downloadable!]
  6. Ilya R. Segal & Michael D. Whinston, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March. [Downloadable!] (restricted)
  7. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
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  11. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
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  12. Fumagalli, Chiara & Motta, Massimo, 2001. "Buyers' Coordination and Entry," CEPR Discussion Papers 2908, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February. [Downloadable!] (restricted)
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  14. Innes, Robert & Sexton, Richard J, 1994. "Strategic Buyers and Exclusionary Contracts," American Economic Review, American Economic Association, vol. 84(3), pages 566-84, June. [Downloadable!] (restricted)
  15. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-37, March. [Downloadable!] (restricted)
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  16. Eric B. Rasmusen & J. Mark Ramseyer & John Shepard Wiley Jr., 2000. "Naked Exclusion: Reply," American Economic Review, American Economic Association, vol. 90(1), pages 310-311, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Liliane Karlinger, 2009. "Vertical Relations in the Presence of Competitive Recycling," Vienna Economics Papers 0910, University of Vienna, Department of Economics. [Downloadable!]
  2. 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. [Downloadable!]
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