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Title: Competitive quantity discounts

Author(s): Giacomo Calzolari and Vincenzo Denicolò

Publication Date: December 2010

Keyword(s): Dominant firm, Exclusion, Non linear pricing and Quantity discounts

Programme Area(s): Industrial Organization

Abstract: We analyze the effects of competition with quantity discounts in a duopoly model with asymmetric firms. Consumers are privately informed about demand, so firms use quantity discounts as a price discrimination device. However, a dominant firm may also use quantity discounts to weaken or eliminate its competitor. We analyze the effects of quantity discounts on firms' profits and consumer surplus. Our main finding is that quantity discounts can decrease social welfare (i.e., the sum of producers' and consumers' surplus) for a small set of parameter values.

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Bibliographic Reference

Calzolari, G and Denicolò, V. 2010. 'Competitive quantity discounts'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8144