Exclusionary Discounts

CCP Working Paper No. 07-13

38 Pages Posted: 25 Jun 2007

See all articles by Janusz A. Ordover

Janusz A. Ordover

New York University (NYU) - Department of Economics

Greg Shaffer

University of Rochester - Simon Business School

Date Written: June 2007

Abstract

We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offers its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.

Keywords: Exclusive dealing, bundling, market-share, discounts, all-units discounts

JEL Classification: L13, L41, L42

Suggested Citation

Ordover, Janusz A. and Shaffer, Greg, Exclusionary Discounts (June 2007). CCP Working Paper No. 07-13, Available at SSRN: https://ssrn.com/abstract=995426 or http://dx.doi.org/10.2139/ssrn.995426

Janusz A. Ordover

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Greg Shaffer (Contact Author)

University of Rochester - Simon Business School ( email )

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