Tuesday, August 14, 2012
Posted by D. Daniel Sokol
Philippe Chone (Crest-LEI) and Laurent Linnemer explore Nonlinear Pricing as Exclusionary Conduct.
ABSTRACT: We study the exclusionary properties of nonlinear pricing by dominant firms in a static environment. Optimal price schedules are nonlinear when the rivals’ sensitivity to competitive pressure varies with the “contestable share” of the market. When buyers can dispose of unconsumed units at no cost, and thus might purchase units they do not need, dominant firms are prevented from placing too much pressure on rivals, which limits the extent of inefficient exclusion. When disposal costs are large and sensitivity to competitive pressure is not monotonic in the contestable share, optimal price schedules may be locally decreasing and highly nonlinear.