Asymmetry in capacity and the adoption of all-units discounts

Yong CHAO; Guofu TAN; Adam Chi Leung WONG

doi:10.1016/j.ijindorg.2019.03.001

Asymmetry in capacity and the adoption of all-units discounts

Yong CHAO, Guofu TAN, Adam Chi Leung WONG

Department of Economics

Research output: Journal Publications › Journal Article (refereed)

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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 language	English
Pages (from-to)	152-172
Number of pages	21
Journal	International Journal of Industrial Organization
Volume	65
Early online date	20 Mar 2019
DOIs	https://doi.org/10.1016/j.ijindorg.2019.03.001
Publication status	Published - Jul 2019

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Costs

Discount

Pricing

Asymmetry

Dominant firm

Competitors

Abuse

Justification

Keywords

All-units discounts
Capacity constraint
Linear pricing

Cite this

CHAO, Y., TAN, G., & WONG, A. C. L. (2019). Asymmetry in capacity and the adoption of all-units discounts. International Journal of Industrial Organization, 65, 152-172. https://doi.org/10.1016/j.ijindorg.2019.03.001

CHAO, Yong ; TAN, Guofu ; WONG, Adam Chi Leung. / Asymmetry in capacity and the adoption of all-units discounts. In: International Journal of Industrial Organization. 2019 ; Vol. 65. pp. 152-172.

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CHAO, Y, TAN, G & WONG, ACL 2019, 'Asymmetry in capacity and the adoption of all-units discounts', International Journal of Industrial Organization, vol. 65, pp. 152-172. https://doi.org/10.1016/j.ijindorg.2019.03.001

Asymmetry in capacity and the adoption of all-units discounts. / CHAO, Yong; TAN, Guofu; WONG, Adam Chi Leung.

In: International Journal of Industrial Organization, Vol. 65, 07.2019, p. 152-172.

Research output: Journal Publications › Journal Article (refereed)

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