All-units discounts as a partial foreclosure device

Yong CHAO, Guofu TAN, Chi Leung, Adam WONG

Research output: Journal PublicationsJournal Article (refereed)

3 Citations (Scopus)

Abstract

We investigate the strategic effects of all-units discounts (AUDs) used by a dominant firm in the presence of a capacity-constrained rival. Due to the limited capacity of the rival, the dominant firm has a captive portion of the buyer's demand for the single product. As compared to linear pricing, the dominant firm can use AUDs to go beyond its captive portion by tying its captive demand with part of the competitive demand and partially foreclose its small rival. When the rival's capacity level is well below relevant demand, AUDs reduce the buyer's surplus.
Original languageEnglish
Pages (from-to)155-180
Number of pages26
JournalRAND Journal of Economics
Volume49
Issue number1
Early online date9 Feb 2018
DOIs
Publication statusPublished - Apr 2018

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