Competing with Menus of Tariff Options
AbstractI study how firms actually compete in nonlinear tariffs by analyzing whether the incumbent and entrant's decisions to offer a given number of tariff options are interrelated. The goal is to shed some light on those dynamic and strategic aspects of tariff menus that are currently ignored by theoretical models of nonlinear pricing competition in order to highlight some basic features of the market that future theoretical work should address. This paper also introduces a generalized multivariate count data model that allows me to account for the possibility of correlation of any sign among the pricing decisions of competing firms in a manner that is robust to the existence of over and underdispersion of counts. Pricing strategies appear to be strategic complements that respond positively to the existing heterogeneity of consumers' tastes. While this is a common source driving the number of tariff options offered, results also show that previous pricing decisions by the incumbent affect the entrant's current offering of tariff options, thus implying free riding by the entrant on information about the market revealed by the likely better informed firm of the industry. The strategic complementarity result disappears when I only consider non-dominated tariffs.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6279.
Date of creation: May 2007
Date of revision:
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Other versions of this item:
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-COM-2007-05-12 (Industrial Competition)
- NEP-CSE-2007-05-12 (Economics of Strategic Management)
- NEP-MIC-2007-05-12 (Microeconomics)
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