Vertical Limit pricing
AbstractA new theory of limit pricing is provided which works through the vertical contract signed between an incumbent manufacturer and a retailer. We establish conditions under which the incumbent can obtain full monopoly profits, even if the potential entrant is more efficient. A key feature of the optimal vertical contract we describe is quantity discounting, typically involving three-part incremental-units or all-units tariffs, with a marginal wholesale price that is below the incumbent’s marginal cost for sufficiently large quantities.
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Bibliographic InfoPaper provided by University of Ottawa, Department of Economics in its series Working Papers with number 1104E.
Length: 34 pages
Date of creation: 2011
Date of revision:
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More information through EDIRC
limit pricing; vertical contracts; multi-part tariffs.;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-18 (All new papers)
- NEP-BEC-2011-06-18 (Business Economics)
- NEP-COM-2011-06-18 (Industrial Competition)
- NEP-IND-2011-06-18 (Industrial Organization)
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