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Firm Size and Pricing Policy

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  • Roy Chowdhury, Prabal

Abstract

We relate the pricing policy of the 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. This allows the firm to effectively commit to its offers, leading to a unique equilibrium without delay, where the firm extracts the whole of the surplus. For smaller firms, however, the reputational effects are much less intense and, consequently, the equilibria involve reneging possibilities. In this case the equilibria are non-unique, and may involve delays as well.

Suggested Citation

  • Roy Chowdhury, Prabal, 2006. "Firm Size and Pricing Policy," MPRA Paper 1515, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1515
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    References listed on IDEAS

    as
    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

    Keywords

    Firm size; reneging; reputation;
    All these keywords.

    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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