Limiting rival's efficiency via conditional discounts

Arbeitspapier

This paper studies the impact of a dominant firm's conditional discounts on competitors' learning-by-doing. In a vertical context where a dominant upstream supplier and a competitive fringe sell their products to a single downstream firm, we analyze whether the dominant supplier prefers to offer a discount scheme, as in particular a quantity or market-share discount. In a dynamic setting with complete information and learning-by-doing, short-term market-share discounts and long-run contracts are more profitable to the dominant supplier than simple two-part tariffs or quantity discounts. We show that two-part tariffs as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant firm's contract choice restricts the competitive fringe's efficiency gain. Similar results occur for network effects.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BGPE Discussion Paper ; No. 132

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Vertical Restraints; Resale Price Maintenance; Quantity Discounts
• Subject: Market-share discounts ; quantity discounts ; learning-by-doing ; dominant upstream supplier ; competitive fringe.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Greer, Katja
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Bavarian Graduate Program in Economics (BGPE)
• (where): Nürnberg
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/73450
• Last update: 10.03.2025, 11:41 AM CET