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All†units discounts as a partial foreclosure device

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  • Yong Chao
  • Guofu Tan
  • Adam Chi Leung Wong

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.

Suggested Citation

  • Yong Chao & Guofu Tan & Adam Chi Leung Wong, 2018. "All†units discounts as a partial foreclosure device," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 155-180, March.
    • Handle: RePEc:bla:randje:v:49:y:2018:i:1:p:155-180
    DOI: 10.1111/1756-2171.12220
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    References listed on IDEAS

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    1. Philippe Choné & Laurent Linnemer, 2015. "Nonlinear pricing and exclusion: I. buyer opportunism," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 217-240, June.
    2. Philippe Choné & Laurent Linnemer, 2016. "Nonlinear pricing and exclusion:II. Must-stock products," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 631-660, August.
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    4. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
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    1. Philippe Choné & Laurent Linnemer, 2016. "Nonlinear pricing and exclusion:II. Must-stock products," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 631-660, August.
    2. Manel Antelo & Lluís Bru, 2024. "Intrapersonal price discrimination and welfare in a dominant firm model," Journal of Economics, Springer, vol. 141(2), pages 163-188, March.
    3. Calzolari, Giacomo & Denicolò, Vincenzo, 2020. "Loyalty discounts and price-cost tests," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    4. Edwards, Robert A. & Routledge, Robert R., 2022. "Information, Bertrand–Edgeworth competition and the law of one price," Journal of Mathematical Economics, Elsevier, vol. 101(C).
    5. Enrique Ide & Juan-Pablo Montero & Nicolás Figueroa, 2016. "Discounts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 106(7), pages 1849-1877, July.
    6. Chao, Yong & Tan, Guofu & Wong, Adam Chi Leung, 2019. "Asymmetry in capacity and the adoption of all-units discounts," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 152-172.
    7. Walter Beckert & Paolo Siciliani, 2018. "Protecting Vulnerable Consumers in "Switching Markets"," Birkbeck Working Papers in Economics and Finance 1808, Birkbeck, Department of Economics, Mathematics & Statistics.
    8. Xiao Fu & Guofu Tan, 2019. "Abuse of Market Dominance Under China’s Anti-Monopoly Law: The Case of Tetra Pak," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 409-434, March.

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