Firm Size and Pricing Policy

Roy Chowdhury, Prabal (2006): Firm Size and Pricing Policy. Unpublished.

Abstract

We relate the pricing policy of the firms to their size, where firm size is interpreted as the size of the clientele served by the concerned firm. We argue that a firm with a large clientele faces a more severe reputational backlash if it reneges. This allows the firm to effectively commit to its offers, leading to a unique equilibrium without delay, where the firm extracts the whole of the surplus. For smaller firms, however, the reputational effects are much less intense and, consequently, the equilibria involve reneging possibilities. In this case the equilibria are non-unique, and may involve delays as well.

• Item Type: MPRA Paper
• Institution: Indian Statistical Institute, Delhi Center
• Language: English
• Keywords: Firm size; reneging; reputation
• Subjects: D - Microeconomics > D4 - Market Structure and Pricing > D40 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory

References

Klein, B., Crawford, R.G., and Alchian, A.A., 1978, Vertical Integration, Appropriable Rents and the Competitive Contracting Process, Journal of Law and Economics 21, 297-326.

Muthoo, A., 1989, Bargaining Without Commitment, ST-ICERD Theoretical Economics Discussion Paper No. 89/193, London School of Economics.

Muthoo, A., 1990, Bargaining Without Commitment, Games and Economic Behavior 2, 291-297.

Muthoo, A., 1995, A Bargaining Model with Players' Perceptions on the Retractability of Offers, Theory and Decisions 38, 85-98.