Using list prices to collude or to compete?

Diego Cussen and Juan-Pablo Montero

No 567, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: It is often argued that collusion is not possible in wholesale markets where suppliers and buyers privately negotiate discounts off list prices and sales quotas are unfeasible. However, this would go against allegations in court of suppliers being able to collude by publicly announcing list prices. It would also go against recent evidence from Chile’s wholesale fresh-egg market: a sudden interruption in the publication of list prices in the local newspaper led to a significant drop in the prices effectively paid by different buyers, large and small. We develop a theory consistent with this evidence, whether suppliers collude or compete. Two effects are at work. When suppliers collude, public announcements of list prices enlarge collusion possibilities from small to large buyers (the multibuyer contact effect). When suppliers compete, these announcements provide them with commitment to unilaterally negotiate better terms with large buyers (the commitment effect).

Keywords: list prices; collusion; Nash bargaining (search for similar items in EconPapers)
JEL-codes: D43 K21 L12 L13 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:567

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