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on Marketing |
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Issue of 2007‒06‒02
two papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | David Gill; John Thanassoulis |
| Abstract: | In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who don`t bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers` outside option less attractive, at a cost to profits from non-bargainers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining. |
| Keywords: | Bargaining, Price Takers, List Price, Consumer Surpus |
| JEL: | L13 D43 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:329&r=mkt |
| By: | Edward J. Balistreri; James R. Markusen |
| Abstract: | We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national (firm) levels. We assume monopolistic competition in the differentiated products at the sub-national level. When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties. We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs--even for relatively small countries. |
| JEL: | F1 F13 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13130&r=mkt |