Interfirm bundled discounts as a collusive device

This paper investigates whether and how firms competing in price with homogeneous goods (i.e., Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts. By committing to offering price discounts conditional on the purchase of a specific brand of other differentiated good, the homogeneous good suppliers can separate consumers into distinct groups. Such brand-specific discounts help the firms relax competition and attain a collusive outcome. Consumers become worse o§ due to higher effective prices. Our result shows that in oligopolies it is feasible to leverage other's market power without excluding rivals.