List pricing and discounting in a Bertrand-Edgeworth duopoly
List, or retail, pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage. Competition authorities view list pricing and discounting as a procompetitive practice. We modify the standard Bertrand-Edgeworth duopoly model to include list pricing and a subsequent discounting stage. Both firms first simultaneously choose a maximum list price and then decide whether to discount, or not, in a subsequent stage. We show that list pricing works as a credible commitment device that induces a pure strategy outcome. This is true for a general class of rationing rules. Further unlike the dominant firm interpretation of a price leader, the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader.
Year of publication: |
2009
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Authors: | García Díaz, Antón ; Hernán González, Roberto ; Kujal, Praveen |
Published in: |
International Journal of Industrial Organization. - Elsevier, ISSN 0167-7187. - Vol. 27.2009, 6, p. 719-727
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Publisher: |
Elsevier |
Keywords: | List pricing Discounts Capacity constrained models Mixed strategies Pure strategies Stackelberg leader |
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