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Competition in posted prices with stochastic discounts

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Gill, David and Thanassoulis, John (2016) Competition in posted prices with stochastic discounts. The Economic Journal, 126 (594). pp. 1528-1570. doi:10.1111/ecoj.12294

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Official URL: http://dx.doi.org/10.1111/ecoj.12294

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Abstract

We study price competition between firms over public list or posted prices when a fraction of consumers can subsequently receive discounts with some probability. Such stochastic discounts are a feature of markets in which some consumers bargain explicitly and of markets in which sellers use the marketing practice of couponing. Even though bargainers receive reductions off the posted prices, the potential to discount dampens competitive pressure in the market, thus raising all prices and increasing profits. Welfare falls because of the stochastic nature of the discounts, which generates some misallocation of products to consumers. Stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Stock options , Stockholders, Price fixing, Stochastic analysis
Journal or Publication Title: The Economic Journal
Publisher: Wiley-Blackwell Publishing Ltd.
ISSN: 0013-0133
Official Date: August 2016
Dates:
DateEvent
August 2016Published
29 April 2016Available
16 June 2015Available
10 April 2015Accepted
4 February 2014Submitted
Date of first compliant deposit: 15 January 2016
Volume: 126
Number: 594
Page Range: pp. 1528-1570
DOI: 10.1111/ecoj.12294
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
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