Interfirm Bundled Discounts in Oligopolies
AbstractThis paper shows that firms producing homogeneous goods (e.g. Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts, which connect their product with a specific brand of other firm with market power. By committing to a price discount exclusively to buyers of a particular brand of another good, the firms create a sort of artificial switching costs and attain a semi-collusive outcome. In fact, the discount scheme allows the firms with no market power to avoid Bertrand trap by leveraging other firms' market power. Consumers are worse off due to higher prices under bundled discounts.
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Bibliographic InfoPaper provided by Yonsei University, Yonsei Economics Research Institute in its series Working papers with number 2012rwp-47.
Length: 16 pages
Date of creation: 13 Jul 2012
Date of revision:
Brand-specific discounts; bundling; co-branding; co-promotion;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-BEC-2012-11-24 (Business Economics)
- NEP-COM-2012-11-24 (Industrial Competition)
- NEP-IND-2012-11-24 (Industrial Organization)
- NEP-MKT-2012-11-24 (Marketing)
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