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Multiproduct pricing in oligopoly

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  • Shelegia, Sandro

Abstract

This paper proposes a two-good model of price competition, where some consumers visit all shops and others visit only one. We find that information frictions lead to price dispersion. When the two goods are complements, their prices will tend to be negatively correlated, so if one is priced high, the other will be discounted. This finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent. If the goods are substitutes, their prices will be uncorrelated, potentially rationalizing the lack of evidence on their co-pricing. When selling complements, retailers earn higher profits than in the one-good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively. Bundling practices are thus shown to be detrimental to retailers' profits.

Suggested Citation

  • Shelegia, Sandro, 2012. "Multiproduct pricing in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 231-242.
  • Handle: RePEc:eee:indorg:v:30:y:2012:i:2:p:231-242 DOI: 10.1016/j.ijindorg.2011.10.001
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    References listed on IDEAS

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    Cited by:

    1. Brandão, António & Correia-da-Silva, João & Pinho, Joana, 2014. "Spatial competition between shopping centers," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 234-250.
    2. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    3. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
    4. José L. Moraga-González & Vaiva Petrikaitė, 2013. "Search costs, demand-side economies, and the incentives to merge under Bertrand competition," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 391-424, September.
    5. Rhodes, Andrew, 2011. "Multiproduct pricing and the Diamond Paradox," MPRA Paper 32511, University Library of Munich, Germany.
    6. Jidong Zhou & Andrew Rhodes, 2015. "A Search Theory of Retail Market Structure," 2015 Meeting Papers 409, Society for Economic Dynamics.
    7. Rhodes, Andrew & Zhou, Jidong, 2016. "Consumer Search and Retail Market Structure," MPRA Paper 69484, University Library of Munich, Germany.

    More about this item

    Keywords

    Multiproduct competition; Complements; Substitutes;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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