List Pricing and Discounting in a Bertrand-Edgeworth Duopoly Articles uri icon

authors

  • GARCIA DIAZ, ANTON
  • HERNAN GONZALEZ, ROBERTO
  • KUJAL, PRAVEEN

publication date

  • November 2009

start page

  • 719

end page

  • 727

issue

  • 6

volume

  • 27

International Standard Serial Number (ISSN)

  • 0167-7187

Electronic International Standard Serial Number (EISSN)

  • 1873-7986

abstract

  • List, or retail, pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage. Competition authorities view list pricing and discounting as a procompetitive practice. We
    modify the standard Bertrand-Edgeworth duopoly model to include list pricing and
    a subsequent discounting stage. Both firms first simultaneously choose a maximum
    list price and then decide whether to discount, or not, in a subsequent stage.
    We show that list pricing works as a credible commitment device that induces a
    pure strategy outcome. This is true for a general class of rationing rules.
    Further unlike the dominant firm interpretation of a price leader, the low
    capacity firm may have incentives to commit to a low price and in this sense
    assume the role of a leader.