Bundling, Discounts Across Product Lines and Volume Discounts In Competitive Markets: A Prisoners` Dilemma?

John Thanassoulis

No 208, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper analyses how competition over rebates for customer loyalty across product lines affects firms` pricing and consumers generally. If buyers incur firm specific costs or have shop specific tastes then competitive loyalty discounts lower consumer surplus overall and raise profits - the same is true of competitive volume discounts. Competition without these discounts causes all prices to be kept low as larger customers are targetted; with discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key. Price discrimination is shown not to be the driving force behind the equilibrium prices - sellers price to steal customers from their rivals. The implications for diverse industries from professional services to cars and supermarkets are explored.

Keywords: Bundling; Loyalty Rebates; Volume Discounts; Competitive Price Discrimination; Collusion (search for similar items in EconPapers)
JEL-codes: C65 C72 L11 L21 L41 (search for similar items in EconPapers)
Date: 2004-10-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:61bc805a-0343-4333-8725-c1cbf2a44da5 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:208

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).