Template-Type: ReDIF-Paper 1.0

Author-Name: Katja Greer 
Author-X-Name-First: Katja
Author-X-Name-Last: Greer


Title: Limiting rival's efficiency via conditional discounts

	
Abstract: This paper studies the impact of a dominant firm's conditional discounts on competitors' learning-by-doing. In a vertical context where a dominant upstream supplier and a competitive fringe sell their products to a single downstream firm, we analyze
whether the dominant supplier prefers to offer a discount scheme, as in particular a quantity or market-share discount. In a dynamic setting with complete information and learning-by-doing, short-term market-share discounts and long-run contracts are
more profitable to the dominant supplier than simple two-part tariffs or quantity discounts. We show that two-part tariffs as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant firm's contract
choice restricts the competitive fringe's efficiency gain. Similar results occur for network effects.

Length: 34 pages

Creation-Date:  2013-02

File-URL: http://www.bgpe.de/texte/DP/132_Greer.pdf
File-Format: Application/pdf

File-Function: First version, 2013

Number: 132

Classification-JEL: L13, L42

Keywords: Market-share discounts, quantity discounts, learning-by-doing, dominant upstream supplier, competitive fringe.

Handle: RePEc:bav:wpaper:132_Greer