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Competition or Collusion? Negotiating Discounts Off Posted Prices

Author

Listed:
  • Alexander Raskovich

    (Economic Analysis Group, Antitrust Division, Department of Justice)

Abstract

Opportunities for buyers to negotiate discounts can blunt competition in the initial posting of prices. It is always an equilibrium for identical suppliers to post price at the common marginal cost. If few buyers have opportunities to bargain, this equilibrium is unique. If many buyers have bargaining opportunities, however, a second equilibrium emerges in which suppliers post the monopoly price and then negotiate discounts individually with buyers. In this equilibrium, discounted prices are above marginal cost and profits increase with concentration. Advance price announcements may help suppliers coordinate onto their preferred equilibrium of posting the monopoly price.

Suggested Citation

  • Alexander Raskovich, 2006. "Competition or Collusion? Negotiating Discounts Off Posted Prices," EAG Discussions Papers 200601, Department of Justice, Antitrust Division.
  • Handle: RePEc:doj:eagpap:200601
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    File URL: https://www.justice.gov/atr/public/eag/221873.pdf
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    Cited by:

    1. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
    2. John Thanassoulis & David Gill, 2010. "The Optimal Marketing Mix of Posted Prices, Discounts and Bargaining," Economics Series Working Papers 479, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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