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Competition in Posted Prices With Stochastic Discounts

David Gill

Purdue University

John E. Thanassoulis

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

January 16, 2015

Economic Journal, Forthcoming

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 and of markets in which sellers use the marketing practice of couponing. Even though bargainers receive reductions off the posted prices, the potential to discount dampens competitive pressure in the market, 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: 51

Keywords: Posted prices, list prices, collusion, bargaining, negotiation, haggling, discounting, coupons, price takers.

JEL Classification: C78, D43, L13

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Date posted: March 3, 2010 ; Last revised: April 24, 2015

Suggested Citation

Gill, David and Thanassoulis, John E., Competition in Posted Prices With Stochastic Discounts (January 16, 2015). Economic Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1562528 or http://dx.doi.org/10.2139/ssrn.1562528

Contact Information

David Gill
Purdue University ( email )
610 Purdue Mall
West Lafayette, IN 47907
United States
John E. Thanassoulis (Contact Author)
University of Warwick - Warwick Business School ( email )
Coventry CV4 7AL
United Kingdom
HOME PAGE: http://https://sites.google.com/site/thanassoulis/
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
Feedback to SSRN

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