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Interfirm Bundled Discounts in Oligopolies

Author

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  • Jong-Hee Hahn

    (school of economics, Yonsei Uneversity)

  • Sang-Hyun Kim

    (Department of Economics, Michigan State University)

Abstract

This paper shows that firms producing homogeneous goods (e.g. Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts, which connect their product with a specific brand of other firm with market power. By committing to a price discount exclusively to buyers of a particular brand of another good, the firms create a sort of artificial switching costs and attain a semi-collusive outcome. In fact, the discount scheme allows the firms with no market power to avoid Bertrand trap by leveraging other firms' market power. Consumers are worse off due to higher prices under bundled discounts.

Suggested Citation

  • Jong-Hee Hahn & Sang-Hyun Kim, 2012. "Interfirm Bundled Discounts in Oligopolies," Working papers 2012rwp-47, Yonsei University, Yonsei Economics Research Institute.
  • Handle: RePEc:yon:wpaper:2012rwp-47
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    References listed on IDEAS

    as
    1. Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, March.
    2. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    3. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
    4. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    5. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
    6. J. Miguel Villas-Boas, 2004. "Price Cycles in Markets with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 486-501, Autumn.
    7. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Brand-specific discounts; bundling; co-branding; co-promotion;

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