All-Units Discounts: Leverage and Partial Foreclosure in Single-Product Markets

Authors

  • Yong Chao
  • Guofu Tan

Abstract

We present an exclusionary theory of all-units discounts schemes. These schemes offer a per-unit discount to all units purchased if the customer's purchase reaches a pre-specified quantity threshold. We demonstrate that when a dominant firm competes with a capacity-constrained rival, it is possible for the dominant firm to use all-units discounts to leverage its market power in the non-contestable portion to influence the contestable portion of the demand in single-product markets and to partially foreclose the small rival. Our theory suggests that pricing below cost is not necessary for all units discounts schemes to be exclusionary and that a standard price-cost test may not be useful in assessing the exclusionary effects of all-units discounts. We advocate a rule of reason approach based on a comprehensive analysis of market structure, the nature of discount programs, exclusionary effects, efficiency, and the welfare consequences of these practices.

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Published

2017-01-01

How to Cite

Chao, Y., & Tan, G. (2017). All-Units Discounts: Leverage and Partial Foreclosure in Single-Product Markets. Canadian Competition Law Review, 30(1), 93–111. Retrieved from https://cclr.cba.org/index.php/cclr/article/view/712