Publication: List pricing and discounting in a Bertrand-Edgeworth duopoly
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2009-11
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Elsevier
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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.
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Keywords
List pricing, Discounts, Capacity constrained models, Mixed strategies, Pure strategies, Stackelberg leader
Bibliographic citation
International journal of industrial organization, v. 27, n. 6, nov. 2009, pp. 719-727