Working Paper: CEPR ID: DP8144
Authors: Giacomo Calzolari; Vincenzo Denicol
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.
Keywords: dominant firm; exclusion; non-linear pricing; quantity discounts
JEL Codes: D42; D82; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| quantity discounts (L42) | social welfare (I38) |
| quantity discounts (L42) | consumer surplus (D46) |
| quantity discounts (L42) | exclusion of smaller firms (L25) |
| asymmetric firms (D21) | harm to consumers (D18) |
| weak substitutes (D10) | benefit consumers (D18) |