DP2449 Barter For Price Discrimination?
Unprecedented growth of barter is a striking phenomenon of Russia’s transition. The explanations of barter include tight monetary policy, tax evasion and poor financial inter-mediation. We show that the market power may also be important. We build a model of imperfect competition in which firms use barter for price discrimination. The model predicts a positive relationship between the concentration of market power and the share of barter in sales. We also show that barter disappears at a certain level of competition. The model has multiple stable equilibria which may explain persistence of barter. Using a unique data set on barter transactions in Russia, we show that empirical evidence is consistent with the model’s predictions.