@article{660fb78188024422a6cd2a52341d87f1,
title = "Product variety and competitive discounts",
abstract = "A market with free entry monopolistic competition is studied. Nonlinear pricing is shown to be the Bertrand-Nash equilibrium strategy for firms. Given small per capita fixed costs, the nonlinear pricing equilibrium approaches the perfectly competitive equilibrium with marginal cost pricing. Nonlinear pricing is associated with greater product variety than linear pricing. Increased variety leads to efficient pricing.",
author = "Spulber, {Daniel F.}",
note = "Funding Information: * The support of the National Science Foundation under Grant SES-86-08115 acknowledged. I thank Dan Alger and Thomas Holmes for helpful comments. associate editor and anonymous referee for useful suggestions. {\textquoteright} Price discrimination has traditionally been studied in a monopoly setting. Spulber [22] gives a model of noncooperative equilibrium with price discrimination by firms selling differentiated products. Recent studies have also considered price discrimination in a competitive setting, Gal-Or [7], Norman [ 161, Oren, Smith. and Wilson [ 181. Spulber 1241. Panzar and Postlewaite [19], Katz [12], Borenstein [I]. Coyte and Lindsey [3] and Holmes [lo]. Of those which focus on nonlinear pricing, a Bertrand-Nash equilibrium in price schedules is not considered except by Gal-Or [7] who studies nonlinear pricing in a general multiproduct setting. Gal-Or does not address issues of product variety and entry. Spulber [24] examines free entry of tirms offering what are essentially monopoly outlay schedules. Oren, Smith, and Wilson [ 181 present six alternative Cournot type models of competition in which firms compete over revenues, output sold, and number of customers. Panzar and Postlewaite [ 193 study monopoly price schedules that are sustainable given free entry. Calem and Spulber 123 study Nash equilibrium two-part tariffs in a differentiated product duopoly. Katz [12] examines a two-price quantity based policy in a free-entry equilibrium with informed and uninformed consumers and is not directly comparable to the present model. Coyte and Lindsey [3] examine Bertrand-Nash equilibrium with two part tariffs in a Hotelling framework.",
year = "1989",
month = aug,
doi = "10.1016/0022-0531(89)90040-9",
language = "English (US)",
volume = "48",
pages = "510--525",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",
number = "2",
}