Abstract

http://ssrn.com/abstract=1562528
 
 

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Competition in Posted Prices With Stochastic Discounts


David Gill


University of Oxford - Department of Economics

John E. Thanassoulis


University of Warwick - Warwick Business School; Oxford-Man Institute, University of Oxford; Nuffield College, University of Oxford

October 29, 2013

Oxford University Department of Economics Working Paper Series

Abstract:     
We study price competition between firms over public list or posted prices when a fraction of consumers (termed ‘bargainers’) can subsequently receive discounts with some probability. Such stochastic discounts are a feature of markets in which some consumers bargain explicitly; of markets in which sellers use the marketing practice of couponing; and of markets in which sellers offer both simple-to-understand tariffs (the posted prices) alongside complex or opaque tariffs that might offer a discount. Even though bargainers receive reductions off the posted prices, the potential to discount dampens competitive pressure in the market by reducing the incentive to undercut a rival’s posted price, thus raising all prices and increasing profits. Welfare falls because of the stochastic nature of the discounts, which generates some misallocation of products to consumers. We also find that stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation.

Number of Pages in PDF File: 34

Keywords: Posted prices, list prices, collusion, bargaining, negotiation, haggling, discounting, coupons, obfuscation, flat rate bias, price takers.

JEL Classification: C78, D43, L13

working papers series


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Date posted: March 3, 2010 ; Last revised: March 18, 2014

Suggested Citation

Gill, David and Thanassoulis, John E., Competition in Posted Prices With Stochastic Discounts (October 29, 2013). Oxford University Department of Economics Working Paper Series. Available at SSRN: http://ssrn.com/abstract=1562528 or http://dx.doi.org/10.2139/ssrn.1562528

Contact Information

David Gill
University of Oxford - Department of Economics ( email )
Department of Economics
University of Oxford
Oxford, Oxfordshire OX1 3UQ
United Kingdom
HOME PAGE: http://users.ox.ac.uk/~nuff0229/
John E. Thanassoulis (Contact Author)
University of Warwick - Warwick Business School ( email )
Coventry CV4 7AL
United Kingdom
Oxford-Man Institute, University of Oxford ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Nuffield College, University of Oxford ( email )
New Road
Oxford, OX1 1NF
United Kingdom
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