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Exclusionary Discounts

Author

Listed:
  • Janusz Ordover

    (New York University)

  • Greg Shaffer

    (University of Rochester)

Abstract

We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offers its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.

Suggested Citation

  • Janusz Ordover & Greg Shaffer, 2007. "Exclusionary Discounts," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-13, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2007_13
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    References listed on IDEAS

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    12. David Spector, 2005. "Loyalty Rebates: An Assessment of Competition Concerns and a Proposed Structured Rule of Reason," Post-Print halshs-00754113, HAL.
    13. Alberto Heimler, 2005. "Below-Cost Pricing and Loyalty-Inducing Discounts: Are They Restrictive and If So, When?," CPI Journal, Competition Policy International, vol. 1.
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    Cited by:

    1. Klein, Joachim & Zenger, Hans, 2009. "Predatory Exclusive Dealing," Discussion Papers in Economics 10626, University of Munich, Department of Economics.
    2. Liliane Giardino-Karlinger, 2016. "Vertical Relations in the Presence of Competitive Recycling," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 25-49, March.
    3. John Asker & Heski Bar-Isaac, 2012. "Vertical Practices Facilitating Exclusion," Working Papers 12-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. DeGraba, Patrick, 2013. "Naked exclusion by a dominant input supplier: Exclusive contracting and loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 516-526.

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    More about this item

    Keywords

    Exclusive Dealing; Bundling; Market-share Discounts; All-Units Discounts;
    All these keywords.

    JEL classification:

    • 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
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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