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Exclusionary Discounts

Author

Listed:
  • Janusz Ordover

    () (New York University and Competition Policy Associates)

  • Greg Shaffer

    () (Simon School of Business, University of Rochester)

Abstract

We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offeres its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.

Suggested Citation

  • Janusz Ordover & Greg Shaffer, 2007. "Exclusionary Discounts," Working Papers 07-13, Centre for Competition Policy, University of East Anglia.
  • Handle: RePEc:ccp:wpaper:wp07-13
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-13.pdf
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    Keywords

    Exclusive dealing; bundling; market-share discounts; all-units discounts;

    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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