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Firm Size And Pricing Policy

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  • Prabal Roy Chowdhury

Abstract

We relate pricing policy of firms to their size, where firm size is interpreted as the size of the clientele served by the concerned firm. We argue that a firm with a large clientele faces a more severe reputational backlash if it ‘reneges’, i.e., deviates from its earlier price offer. This allows the firm to effectively commit to its offers, leading to a unique equilibrium without delay. Interestingly, this equilibrium corresponds to the equilibrium of the related model that does not allow for reneging possibilities. For smaller firms, however, the reputational effects are much less intense, and consequently the equilibria may involve deviation possibilities. In this case, the equilibria are non‐unique and may involve delays as well.

Suggested Citation

  • Prabal Roy Chowdhury, 2010. "Firm Size And Pricing Policy," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 181-195, April.
    • Handle: RePEc:bla:buecrs:v:62:y:2010:i:2:p:181-195
    DOI: 10.1111/j.1467-8586.2009.00325.x
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    1. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    2. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
    3. Muthoo, Abhinay, 1990. "Bargaining without commitment," Games and Economic Behavior, Elsevier, vol. 2(3), pages 291-297, September.
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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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