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Limiting rival's efficiency via conditional discounts

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  • Greer, Katja
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    Abstract

    This paper studies the impact of a dominant firm's conditional discounts on competitors' learning-by-doing. In a vertical context where a dominant upstream supplier and a competitive fringe sell their products to a single downstream firm, we analyze whether the dominant supplier prefers to off er a discount scheme, as in particular a quantity or market-share discount. In a dynamic setting with complete information and learning-by-doing, short-term market-share discounts and long-run contracts are more pro fitable to the dominant supplier than simple two-part tariff s or quantity discounts. We show that two-part tariff s as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant fi rm's contract choice restricts the competitive fringe's e fficiency gain. Similar results occur for network eff ects. --

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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79730.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:79730

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    1. Sreya Kolay & Greg Shaffer & Janusz A. Ordover, 2004. "All-Units Discounts in Retail Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 429-459, 09.
    2. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
    3. Adrian Majumdar & Greg Shaffer, 2009. "Market-Share Contracts with Asymmetric Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 393-421, 06.
    4. Can Erutku, 2006. "Rebates as incentives to exclusivity," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 477-492, May.
    5. Ioana Chioveanu & Ugur Akgun, 2011. "Loyalty discounts," Working Papers. Serie AD 2011-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    6. Cabral, Luis M B & Riordan, Michael H, 1997. "The Learning Curve, Predation, Antitrust, and Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 155-69, June.
    7. Calzolari, Giacomo & Denicolò, Vincenzo, 2011. "On the anti-competitive effects of quantity discounts," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 337-341, May.
    8. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
    9. Roman Inderst & Greg Shaffer, 2010. "Market-share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729.
    10. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, December.
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