Interfirm Bundled Discounts in Oligopolies

Jong-Hee Hahn and Sang-Hyun Kim

No 2012rwp-47, Working papers from Yonsei University, Yonsei Economics Research Institute

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.

Keywords: Brand-specific discounts; bundling; co-branding; co-promotion (search for similar items in EconPapers)
Pages: 16 pages
Date: 2012-07-13
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:yon:wpaper:2012rwp-47

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