SALES TECHNOLOGY AND PRICE LEADERSHIP*

Debabrata Datta and Jaideep Roy

Manchester School, 2008, vol. 76, issue 2, 180-195

Abstract: Two firms sell a homogeneous product to two buyers who differ significantly in their valuation of the good and are allowed to charge (possibly) multiple two‐part tariffs. Firms decide upon optimal prices and the choice of sales technologies which help acquire revenues from nonlinear prices. There is a subgame‐perfect equilibrium where firms choose different sales technologies and the firm with an advanced sales technology emerges to be a price leader, charging a two‐part tariff and selling only to the low‐valuation buyers. Consequently, the firm with the less advanced sales technology follows, charges only a fixed fee and serves the high‐valuation buyers and always earns strictly higher profits than its leader. Social surplus may deteriorate with competition.

Date: 2008
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