Firm Size and Pricing Policy
AbstractWe relate the pricing policy of the firms to their size, where firm size is interpreted as the size of the clientele served by the concerned firm. We argue that a firm with a large clientele faces a more severe reputational backlash if it reneges. This allows the firm to effectively commit to its offers, leading to a unique equilibrium without delay, where the firm extracts the whole of the surplus. For smaller firms, however, the reputational effects are much less intense and, consequently, the equilibria involve reneging possibilities. In this case the equilibria are non-unique, and may involve delays as well.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1515.
Date of creation: Jun 2006
Date of revision:
Firm size; reneging; reputation;
Other versions of this item:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-28 (All new papers)
- NEP-COM-2007-01-28 (Industrial Competition)
- NEP-MIC-2007-01-28 (Microeconomics)
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.:
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 297-326, October.
- Muthoo, Abhinay, 1990. "Bargaining without commitment," Games and Economic Behavior, Elsevier, Elsevier, vol. 2(3), pages 291-297, September.
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