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Asymmetry in capacity and the adoption of all-units discounts

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  • Chao, Yong
  • Tan, Guofu
  • Wong, Adam Chi Leung

Abstract

In many abuse of dominance antitrust cases, the dominant firm adopts pricing schemes involving all-units discounts, whereas its smaller competitors often use simple linear pricing. We provide a game-theoretic justification for the observed asymmetry in pricing practices by studying a model in which a firm with full capacity faces a capacity-constrained rival. The asymmetry in capacity between the firms, which gives rise to the captive market, allows the dominant firm to take advantage of the quantity commitment through all-units discounts while the capacity-constrained rival is induced to offer simple linear pricing.

Suggested Citation

  • Chao, Yong & Tan, Guofu & Wong, Adam Chi Leung, 2019. "Asymmetry in capacity and the adoption of all-units discounts," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 152-172.
    • Handle: RePEc:eee:indorg:v:65:y:2019:i:c:p:152-172
    DOI: 10.1016/j.ijindorg.2019.03.001
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    References listed on IDEAS

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    Cited by:

    1. Calzolari, Giacomo & Denicolò, Vincenzo, 2020. "Loyalty discounts and price-cost tests," International Journal of Industrial Organization, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Linear pricing; All-units discounts; Capacity constraint;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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