Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73450
Authors: 
Greer, Katja
Year of Publication: 
2013
Series/Report no.: 
BGPE Discussion Paper 132
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.
Subjects: 
Market-share discounts
quantity discounts
learning-by-doing
dominant upstream supplier
competitive fringe.
JEL: 
L13
L42
Document Type: 
Working Paper

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