Nonlinear Pricing and Exclusion: II. Must-Stock Products

35 Pages Posted: 23 Jul 2014

See all articles by Philippe Choné

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); CESifo (Center for Economic Studies and Ifo Institute)

Laurent Linnemer

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: July 22, 2014

Abstract

We adapt the exclusion model of Choné and Linnemer (2014) to reflect the notion that dominant firms are unavoidable trading partners. In particular, we introduce the share of the buyer’s demand that can be addressed by the rival as a new dimension of uncertainty. Nonlinear price-quantity schedules allow the dominant firm to adjust the competitive pressure placed on the rival to the size of the contestable demand, and to distort the rival supply at both the extensive and intensive margins. When disposal costs are sufficiently large, this adjustment may yield highly nonlinear and locally decreasing schedules, such as "retroactive rebates".

Keywords: inefficient exclusion, buyer opportunism, disposal costs, quantity rebates, incomplete information

JEL Classification: L12, L42, D82, D86

Suggested Citation

Choné, Philippe and Linnemer, Laurent, Nonlinear Pricing and Exclusion: II. Must-Stock Products (July 22, 2014). CESifo Working Paper Series No. 4874, Available at SSRN: https://ssrn.com/abstract=2469742 or http://dx.doi.org/10.2139/ssrn.2469742

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Laurent Linnemer (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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