Asymmetry in capacity and the adoption of all-units discounts

Yong Chao, Guofu Tan and Adam Chi Leung Wong

International Journal of Industrial Organization, 2019, vol. 65, issue C, 152-172

Abstract: In many abuse of dominance antitrust cases, the dominant firm adopts pricing schemes involving all-units discounts, whereas its smaller competitors often use simple linear pricing. We provide a game-theoretic justification for the observed asymmetry in pricing practices by studying a model in which a firm with full capacity faces a capacity-constrained rival. The asymmetry in capacity between the firms, which gives rise to the captive market, allows the dominant firm to take advantage of the quantity commitment through all-units discounts while the capacity-constrained rival is induced to offer simple linear pricing.

Keywords: Linear pricing; All-units discounts; Capacity constraint (search for similar items in EconPapers)
JEL-codes: D43 L13 L42 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:65:y:2019:i:c:p:152-172

DOI: 10.1016/j.ijindorg.2019.03.001

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