Interfirm Bundled Discounts as a Collusive Device

Jong Hee Hahn, Sang Hyun Kim

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

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.

Original languageEnglish
Pages (from-to)255-276
Number of pages22
JournalJournal of Industrial Economics
Volume64
Issue number2
DOIs
Publication statusPublished - 2016 Jun 1

Bibliographical note

Publisher Copyright:
© 2016 John Wiley & Sons Ltd and the Editorial Board of The Journal of Industrial Economics.

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Economics and Econometrics

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