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Interfirm Bundled Discounts in Oligopolies

Author

Listed:
  • Jong-Hee Hahn

    (school of economics, Yonsei Uneversity)

  • Sang-Hyun Kim

    (Department of Economics, Michigan State University)

Abstract

This paper shows that firms producing homogeneous goods (e.g. Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts, which connect their product with a specific brand of other firm with market power. By committing to a price discount exclusively to buyers of a particular brand of another good, the firms create a sort of artificial switching costs and attain a semi-collusive outcome. In fact, the discount scheme allows the firms with no market power to avoid Bertrand trap by leveraging other firms' market power. Consumers are worse off due to higher prices under bundled discounts.

Suggested Citation

  • Jong-Hee Hahn & Sang-Hyun Kim, 2012. "Interfirm Bundled Discounts in Oligopolies," Working papers 2012rwp-47, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2012rwp-47
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Brand-specific discounts; bundling; co-branding; co-promotion;
    All these keywords.

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