Vertical Limit pricing
A new theory of limit pricing is provided which works through the vertical contract signed between an incumbent manufacturer and a retailer. We establish conditions under which the incumbent can obtain full monopoly profits, even if the potential entrant is more efficient. A key feature of the optimal vertical contract we describe is quantity discounting, typically involving three-part incremental-units or all-units tariffs, with a marginal wholesale price that is below the incumbent’s marginal cost for sufficiently large quantities.
|Date of creation:||2011|
|Contact details of provider:|| Postal: PO Box 450, Station A, Ottawa, Ontario, K1N 6N5|
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- Bruce Kobayashi, 2005. "The Economics of Loyalty Rebates and Antitrust Law in the United States," CPI Journal, Competition Policy International, vol. 1.
- David Martimort & Lars Stole, 2002.
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- Chiara Fumagalli & Massimo Motta, 2006.
"Exclusive Dealing and Entry, when Buyers Compete,"
American Economic Review,
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- Patrick Rey & Thibaud Verge, 2002.
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The Centre for Market and Public Organisation
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- Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-265, March.
- Stefanadis, Christodoulos, 1998. "Selective Contracts, Foreclosure, and the Chicago School View," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 429-450, October.
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