Competition in Posted Prices With Stochastic Discounts
AbstractWe study price competition between firms over public list or posted prices when a fraction of consumers (termed 'bargainers') can subsequently receive discounts with some probability.� Such stochastic discounts are a feature of markets in which some consumers bargain explicitly; of markets in which sellers use the marketing practice of couponing; and of markets in which sellers offer both simple-to-understand tariffs (the posted prices) alongside complex or opaque tariffs that might offer a discount.� Even though bargainers receive reductions off the posted prices, the potential to discount dampens competitive pressure in the market by reducing the incentive to undercut a rival's posted price, thus raising all prices and increasing profits.� Welfare falls because of the stochastic nature of the discounts, which generates some misallocation of products to consumers.� We also find that stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 682.
Date of creation: 30 Oct 2013
Date of revision:
Posted prices; list prices; collusion; bargaining; negotiation; haggling; discounting; coupons; obfuscation; flat rate bias; price takers;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-COM-2013-11-16 (Industrial Competition)
- NEP-IND-2013-11-16 (Industrial Organization)
- NEP-MKT-2013-11-16 (Marketing)
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.:
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