DP6258 Exclusionary Pricing and Rebates When Scale Matters

Author(s): Liliane Karlinger, Massimo Motta
Publication Date: April 2007
Keyword(s): abuse of dominance, exclusionary practices, network industry, price discrimination, rebates
JEL(s): L11, L14, L42
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6258

We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers. The incumbent disposes of an installed base, while the entrant has a network of size zero at the outset, and needs to attract a critical mass of buyers to operate. We analyze different price schemes (uniform pricing, implicit price discrimination - or rebates, explicit price discrimination) and show that the schemes which - for given market structure - induce a higher level of welfare are also those under which the incumbent is more likely to exclude the rival.