Working Paper: CEPR ID: DP6258
Authors: Liliane Karlinger; Massimo Motta
Abstract: 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.
Keywords: Abuse of dominance; Exclusionary practices; Network industry; Price discrimination; Rebates
JEL Codes: L11; L14; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rebates (L42) | exclusion (Y60) |
| pricing strategies (D49) | entry likelihood (Y20) |
| pricing strategies (D49) | welfare outcomes (I38) |
| aggressive pricing (L11) | lower prices (P22) |
| aggressive pricing (L11) | higher exclusion likelihood (C24) |