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Exclusionary Pricing and Rebates When Scale Matters

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Author Info
Liliane Karlinger
Massimo Motta

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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 lower equilibrium prices are also those under which the incumbent is more likely to exclude the rival.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/30.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/30

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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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  1. 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)
  2. CRÉMER, Jacques & REY, Patrick & TIROLE, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
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  3. 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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  4. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  5. John Vickers, 2005. "Abuse of Market Power," Economic Journal, Royal Economic Society, vol. 115(504), pages F244-F261, 06. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. 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)
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  8. 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)
  9. Fumagalli, Chiara & Motta, Massimo, 2001. "Buyers' Coordination and Entry," CEPR Discussion Papers 2908, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. 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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  11. 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)
  12. Gual, Jordi & Hellwig, Martin & 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!]
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  13. 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)
  14. 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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