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Interfirm Bundled Discounts as a Collusive Device
Author(s) -
Hahn JongHee,
Kim SangHyun
Publication year - 2016
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12097
Subject(s) - competitor analysis , homogeneous , leverage (statistics) , oligopoly , business , market power , industrial organization , collusion , competition (biology) , microeconomics , outcome (game theory) , price discrimination , economics , marketing , monopoly , cournot competition , ecology , physics , machine learning , biology , thermodynamics , computer science
This paper investigates whether and how firms competing in price with homogeneous goods (i.e., B ertrand 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.