Discussion paper

DP6258 Exclusionary Pricing and Rebates When Scale Matters

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.

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Citation

Motta, M and L Karlinger (2007), ‘DP6258 Exclusionary Pricing and Rebates When Scale Matters‘, CEPR Discussion Paper No. 6258. CEPR Press, Paris & London. https://cepr.org/publications/dp6258