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List pricing and discounting in a Bertrand-Edgeworth duopoly

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  • García Díaz, Antón
  • Hernán González, Roberto
  • Kujal, Praveen

Abstract

List, or retail, pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage. Competition authorities view list pricing and discounting as a procompetitive practice. We modify the standard Bertrand-Edgeworth duopoly model to include list pricing and a subsequent discounting stage. Both firms first simultaneously choose a maximum list price and then decide whether to discount, or not, in a subsequent stage. We show that list pricing works as a credible commitment device that induces a pure strategy outcome. This is true for a general class of rationing rules. Further unlike the dominant firm interpretation of a price leader, the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader.

Suggested Citation

  • García Díaz, Antón & Hernán González, Roberto & Kujal, Praveen, 2009. "List pricing and discounting in a Bertrand-Edgeworth duopoly," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 719-727, November.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:6:p:719-727
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    References listed on IDEAS

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    Cited by:

    1. Cracau, Daniel, 2013. "Judo economics in markets with asymmetric firms," Economics Letters, Elsevier, vol. 119(1), pages 35-37.
    2. Daniel Cracau & Abdolkarim Sadrieh, 2016. "Coexistence of Small and Dominant Firms in Bertrand Competition: Judo Economics in the Lab," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(4), pages 665-693, December.

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