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Limiting rival's efficiency via conditional discounts

Listed author(s):
  • Katja Greer
Registered author(s):

    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 offer 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 profitable to the dominant supplier than simple two-part tariffs or quantity discounts. We show that two-part tariffs as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant firm's contract choice restricts the competitive fringe's efficiency gain. Similar results occur for network effects.

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    File URL: http://www.bgpe.de/texte/DP/132_Greer.pdf
    File Function: First version, 2013
    Download Restriction: no

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 132.

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    Length: 34 pages
    Date of creation: Feb 2013
    Handle: RePEc:bav:wpaper:132_greer
    Contact details of provider: Web page: http://www.bgpe.de/

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    1. Akgün Uğur & Chioveanu Ioana, 2013. "Loyalty Discounts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 655-685, September.
    2. 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.
    3. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
    4. David Mills, 2010. "Inducing Downstream Selling Effort with Market Share Discounts," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(2), pages 129-146.
    5. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
    6. Christian Ahlborn & David Bailey, 2006. "Discounts, Rebates and Selective Pricing by Dominant Firms: A Trans-Atlantic Comparison," Chapters,in: Handbook of Research in Trans-Atlantic Antitrust, chapter 7 Edward Elgar Publishing.
    7. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, July.
    8. Roman Inderst & Greg Shaffer, 2010. "Market-share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729.
    9. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    10. 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.
    11. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, 03.
    12. Can Erutku, 2006. "Rebates as incentives to exclusivity," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 477-492, May.
    13. 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.
    14. 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 155-169, June.
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