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Nonlinear pricing and exclusion:II. Must‐stock products
Author(s) -
Choné Philippe,
Linnemer Laurent
Publication year - 2016
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12138
Subject(s) - nonlinear pricing , microeconomics , business , stock (firearms) , industrial organization , economics , mechanical engineering , engineering
Dominant firms often are unavoidable trading partners. Buyers may consider switching a fraction of their requirements to rival products, but that fraction is highly uncertain in rapidly evolving industries. Nonlinear pricing serves to adjust the competitive pressure placed on rival firms, depending on the joint distribution of the buyer willingness to pay for the rival's good and the share of contestable demand. Concave price‐quantity schedules erect barriers to entry. Convex parts in schedules introduce barriers to expansion. Dominant firms use all‐units discounts to create high entry barriers for rival firms with intermediate levels of contestable demand.