We investigate the strategic effects of all-units discounts (AUDs) used by a dominant firm in the presence of a capacity-constrained rival. Due to the limited capacity of the rival, the dominant firm has a captive portion of the buyer's demand for the single product. As compared to linear...

All-units discounts (AUD) are pricing schemes that lower a buyer's marginal price on every unit purchased when the buyer's purchase exceeds or is equal to a pre-specified threshold. The AUD and related conditional rebates are commonly used in both final-goods and intermediate-goods markets....

We present an exclusionary theory of all-units discounts schemes. These schemes offer a per-unit discount to all units purchased if the customer's purchase reaches a pre-specified quantity threshold. We demonstrate that when a dominant firm competes with a capacity-constrained rival, it is...