Limiting rival's efficiency via conditional discounts

Katja Greer

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: This paper studies the impact of a dominant firm's conditional discounts on competitors' learning-by-doing. In a vertical context where a dominant upstream supplier and a competitive fringe sell their products to a single downstream firm, we analyze whether the dominant supplier prefers to off er a discount scheme, as in particular a quantity or market-share discount. In a dynamic setting with complete information and learning-by-doing, short-term market-share discounts and long-run contracts are more pro fitable to the dominant supplier than simple two-part tariff s or quantity discounts. We show that two-part tariff s as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant fi rm's contract choice restricts the competitive fringe's e fficiency gain. Similar results occur for network eff ects.

JEL-codes: D43 L13 L42 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com
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