Mixed pricing in monopoly and oligopoly: theory and implications for merger analysis
New Zealand Economic Papers, 2017, vol. 51, issue 2, 122-135
Mixed pricing is when firms supplying an input to other firms charge some customers a fixed, take-it-or-leave-it (ToL) price, whilst other customers are allowed to bargain for a special (lower) price. The practice appears to be almost ubiquitous in business-to-business markets. The paper analyses how monopoly or non-cooperative oligopoly sellers will optimally choose which customers to bargain with, and will choose the ToL price to be paid by other customers. In the model, average revenues and thus profits increase as the number of competitors gets smaller, but this is achieved without the restriction of output predicted by standard price theory. Implications for merger analysis and policy are drawn out.
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