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“Competing with Menus of Tariff Options”

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Abstract

I study how firms actually compete in nonlinear tariffs by analyzing whether the incumbent and entrant’s decisions to offer a given number of tariff options are interrelated. The goal is to shed some light on those dynamic and strategic aspects of tariff menus that are currently ignored by theoretical models of nonlinear pricing competition in order to highlight some basic features of the market that future theoretical work should address. This paper also introduces a generalized multivariate count data model that allows to account for the possibility of correlation of any sign among the pricing decisions of competing firms in a manner that is robust to the existence of over and underdispersion of counts. Pricing strategies appear to be strategic complements that respond positively to the existing heterogeneity of consumers’ tastes. While this is a common source driving the number of tariff options offered, results also show that previous pricing decisions by the incumbent affect the entrant’s current offering of tariff options, thus free riding on information about the market revealed by the likely better informed firm of the industry. The strategic complementarity result disappears when we only consider non-dominated tariffs.

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  • Eugenio Miravete, 2007. "“Competing with Menus of Tariff Options”," Working Papers 07-02, NET Institute, revised Jul 2007.
  • Handle: RePEc:net:wpaper:0702
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    Cited by:

    1. Miravete, Eugenio, 2007. "The Limited Gains From Complex Tariffs," Working Paper Series 3971, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Miravete, Eugenio J. & Pernías, José C., 2010. "Testing for complementarity when strategies are dichotomous," Economics Letters, Elsevier, vol. 106(1), pages 28-31, January.
    3. Bonatti, Alessandro, 2011. "Brand-specific tastes for quality," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 562-575, September.

    More about this item

    Keywords

    Nonlinear Pricing Competition; Tariff Menus; Strategic Complementarity; Bivariate Count Data Regression;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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