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Media type:
E-Article
Title:
Capping Bundle Discounts: Two Regulatory Rationales*
Contributor:
Byford, Martin C.;
King, Stephen
imprint:
Wiley, 2021
Published in:The Journal of Industrial Economics
Language:
English
DOI:
10.1111/joie.12251
ISSN:
1467-6451;
0022-1821
Origination:
Footnote:
Description:
<jats:p>Mixed‐bundling of groceries and gasoline is common, but it raises ‘predatory’ concerns. This paper extends the standard Hotelling approach to consider bundled discounts when two conglomerates and an independent gasoline retailer compete. We show that bundling may result in exit and analyze the effects of capping discounts—a regulatory solution adopted in Australia. The optimal cap depends on the regulator’s objective and the potential for exit. When unregulated discounting leads to exit, an intermediate cap maximises consumer surplus. A cap also ensures that no consumer is worse off with the discounts, an outcome that does not occur with unregulated discounts.</jats:p>