All-Unit Discounts and the Problem of Surplus Division

19 Pages Posted: 16 Dec 2007 Last revised: 20 Feb 2010

See all articles by Eberhard Feess

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Ansgar Wohlschlegel

Portsmouth Business School

Date Written: February 15, 2010

Abstract

Competition authorities often challenge all-unit discounts due to the high pressure they impose upon buyers to meet the quantity threshold. We analyze this so called suction effect in a sequential-entry model where an incumbent seller seeks to shift rents from a more efficient entrant. We find that, in contrast to other rent-seeking mechanisms such as exclusive dealing contracts which are usually seen as being very similar, all-unit discounts do not fully allow the incumbent seller to disentangle the implementation of the desired quantity from the surplus division with a buyer. We show that this leads to inefficiencies if and only if the buyer has a high outside option which is the case when competition between potential entrants is high, and we argue that this source of inefficiencies is typical for all-unit discounts.

Keywords: Discounts, Abuse of Market Dominance, Foreclosure, Rent Shifting, Exclusive Dealing.

JEL Classification: D86, K21, L42

Suggested Citation

Feess, Eberhard and Wohlschlegel, Ansgar, All-Unit Discounts and the Problem of Surplus Division (February 15, 2010). Available at SSRN: https://ssrn.com/abstract=1071782 or http://dx.doi.org/10.2139/ssrn.1071782

Eberhard Feess (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Ansgar Wohlschlegel

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

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