Asymmetry in capacity and the adoption of all-units discounts

Yong CHAO, Guofu TAN, Adam Chi Leung WONG

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations
10 Downloads (Pure)

Abstract

In many abuse of dominance antitrust cases, the dominant firm adopts pricing schemes involving all-units discounts, whereas its smaller competitors often use simple linear pricing. We provide a game-theoretic justification for the observed asymmetry in pricing practices by studying a model in which a firm with full capacity faces a capacity-constrained rival. The asymmetry in capacity between the firms, which gives rise to the captive market, allows the dominant firm to take advantage of the quantity commitment through all-units discounts while the capacity-constrained rival is induced to offer simple linear pricing.
Original languageEnglish
Pages (from-to)152-172
Number of pages21
JournalInternational Journal of Industrial Organization
Volume65
Early online date20 Mar 2019
DOIs
Publication statusPublished - Jul 2019

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Keywords

  • All-units discounts
  • Capacity constraint
  • Linear pricing

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