Barter for price discrimination

Guriev, SG and Kvassov, D (2004) Barter for price discrimination. International Journal of Industrial Organization, 22 (3). pp. 329-350. ISSN 0167-7187

Abstract

We study barter as a discriminatory instrument in oligopoly with asymmetric information. Buyers (producers of final goods) differ in the quality of their products. Sellers (producers of inputs) use barter as a screening device: the higher quality buyers pay in cash while the lower quality ones pay in kind. Barter, identified with non-monetary contracts that give a seller control over a buyer's output, emerges in equilibrium even in the absence of financial constraints.
There is a positive relationship between market concentration and the level of barter. Barter disappears as the market becomes more competitive. Barter and no-barter equilibria coexist for a range of market structures.