Interfirm Bundled Discounts as a Collusive Device

22 Pages Posted: 7 Jun 2016

See all articles by Jong‐Hee Hahn

Jong‐Hee Hahn

Yonsei University

Sang-Hyun Kim

University of East Anglia (UEA)

Date Written: June 2016

Abstract

This paper investigates whether and how firms competing in price with homogeneous goods (i.e., Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts. By committing to offering price discounts conditional on the purchase of a specific brand of other differentiated good, the homogeneous good suppliers can separate consumers into distinct groups. Such brand‐specific discounts help the firms relax competition and attain a collusive outcome. Consumers become worse off due to higher effective prices. Our result shows that in oligopolies it is feasible to leverage other's market power without excluding rivals.

Suggested Citation

Hahn, Jong‐Hee and Kim, Sang-Hyun, Interfirm Bundled Discounts as a Collusive Device (June 2016). The Journal of Industrial Economics, Vol. 64, Issue 2, pp. 255-276, 2016, Available at SSRN: https://ssrn.com/abstract=2791214 or http://dx.doi.org/10.1111/joie.12097

Jong‐Hee Hahn (Contact Author)

Yonsei University

Seoul
Korea, Republic of (South Korea)

Sang-Hyun Kim

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

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