June 29, 2012
Leaving the Door Ajar: Nonlinear Pricing by a Dominant Firm
Posted by D. Daniel Sokol
Philippe Chone (CREST) and Laurent Linnemer (CREST) describe Leaving the Door Ajar: Nonlinear Pricing by a Dominant Firm.
ABSTRACT: An incumbent firm and a buyer agree on a price-quantity schedule before the buyer negotiates with a rival firm. The rival’s efficiency and the share of the buyer’s demand he can address are unknown when the schedule is chosen. Incomplete information yields inefficient exclusion. We link the slope and the curvature of the optimal tariff to the distribution of the uncertainty, and investigate whether foreclosure is complete or partial. When the buyer’s disposal costs are finite, she might buy more than needed with the sole purpose of qualifying for rebates, which limits the extent of inefficient exclusion. Conditional tariffs make it possible for the incumbent to overcome the opportunism problem and to exclude very efficient competitors.
June 29, 2012 | Permalink
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