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Menu Competition: The Case of Nonlinear Pricing

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  • Mario Epelbaum

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

Models of linear price competition predict that competing firms always have incentives to merge. Moreover, if the goods sold are substitutes (complements) mergers are socially detrimental (beneficial). In this paper we analyze these conjectures when the firms are allowed to set non-linear prices. We find that when the goods are substitutes mergers still improve firm's profits but do not induce inefficiencies. Moreover, when the goods are complements, mergers yields no private or social gains since the merged firms' behavior mimics that of competing firms. While the model developed here is posed in terms of firms that use non-linear prices, the abstraction is applicable to many circumstances where parties compete via menus.

Suggested Citation

  • Mario Epelbaum, 1993. "Menu Competition: The Case of Nonlinear Pricing," Working Papers 9305, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:9305
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