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In the soft drinks market, one company is dominant. It offers its customers (bar owners) a 20% discount on their annual bill if they buy
In the soft drinks market, one company is dominant. It offers its customers (bar owners) a 20% discount on their annual bill if they buy at least 80% of their soda requirements from it. The market requirement for sodas is 100,000 bottles per year. A bottle is worth $1. A soda distributor, a competitor of the dominant firm, will have to match the discounted price offered by the dominant firm: $0.80 per bottle if it serves less than 20% of the market. If it wants to serve more than 20% of the market, it must compensate its customers for the loss of their discount on all quantities that are purchased from the dominant firm. For example, if he serves 50% of the market, he must charge $0.60 = $0.80 - $0.2 lost discount. What is the name given to the dominant soda supplier's pricing practice? Explain in detail what this practice is
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