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Exclusionary discounts

Author

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  • Ordover, Janusz A.
  • Shaffer, Greg

Abstract

We consider a two-period model with two sellers and one buyer. Although we assume it is efficient for the buyer to purchase from both sellers in each period, we show that when the buyer's valuations are inter-temporally linked and at least one seller is financially constrained, exclusion can sometimes arise in equilibrium (i.e., the buyer purchases all of its requirements from the same seller in each period). The exclusionary equilibria are supported by contract offers in which the excluding seller's incremental price to supply the contestable part of demand is below its marginal cost and sometimes negative. Our findings contribute to the literatures on market-share contracts, bundling, all-units discounts, and loyalty discounts.

Suggested Citation

  • Ordover, Janusz A. & Shaffer, Greg, 2013. "Exclusionary discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 569-586.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:569-586
    DOI: 10.1016/j.ijindorg.2013.10.002
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
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    10. 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.
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    18. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 159-187.
    19. 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, September.
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    Citations

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    Cited by:

    1. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    2. Rajib L. Saha & Sumanta Singha & Subodha Kumar, 2021. "Does Congestion Always Hurt? Managing Discount Under Congestion in a Game-Theoretic Setting," Information Systems Research, INFORMS, vol. 32(4), pages 1347-1367, December.
    3. Walter Beckert & Paolo Siciliani, 2018. "Protecting Vulnerable Consumers in "Switching Markets"," Birkbeck Working Papers in Economics and Finance 1808, Birkbeck, Department of Economics, Mathematics & Statistics.
    4. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    5. Yong Chao & Guofu Tan & Adam Chi Leung Wong, 2018. "All†units discounts as a partial foreclosure device," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 155-180, March.

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    More about this item

    Keywords

    All-units discounts; Bundling; Loyalty discounts; Market-share contracts;
    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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