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Market-share contracts as facilitating practices

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Author Info

  • Roman Inderst
  • Greg Shaffer

Abstract

This article investigates how the use of contracts that condition discounts on the share a supplier receives of a retailer's total purchases (market-share contracts) may affect market outcomes. The case of a dominant supplier that distributes its product through retailers that also sell substitute products is considered. It is found that when the supplier's contracts can only depend on how much a retailer purchases of its product (own-supplier contracts), intra- and interbrand competition cannot simultaneously be dampened. However, competition on all goods can simultaneously be dampened when market-share contracts are feasible. Compared to own-supplier contracts, the use of market-share contracts increases the dominant supplier's profit and, if demand is linear, lowers consumer surplus and welfare. Copyright (c) 2010, RAND..

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 4 ()
Pages: 709-729

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Handle: RePEc:bla:randje:v:41:y:2010:i:4:p:709-729

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Cited by:
  1. Edlin, Aaron & Farrell, Joseph, 2011. "Freedom to Trade and the Competitive Process," Berkeley Olin Program in Law & Economics, Working Paper Series qt0xg2h885, Berkeley Olin Program in Law & Economics.
  2. Gabrielsen, Tommy Staahl & Johansen, Bjørn Olav, 2012. "Buyer power and exclusion in vertically related markets," Working Papers in Economics 01/12, University of Bergen, Department of Economics.
  3. Philippe Choné & Laurent Linnemer, 2011. "Leaving the Door Ajar : Nonlinear Pricing by a Dominant Firm," Working Papers 2011-16, Centre de Recherche en Economie et Statistique.
  4. Gabrielsen, Tommy Staahl & Johansen, Bjørn Olav, 2013. "Resale Price Maintenance And Up-Front Payments: Achieving Horizontal Control Under Seller And Buyer Power," Working Papers in Economics 02/13, University of Bergen, Department of Economics.
  5. Ordover, Janusz A. & Shaffer, Greg, 2013. "Exclusionary discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 569-586.
  6. Greer, Katja, 2013. "Limiting rival's efficiency via conditional discounts," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79730, Verein für Socialpolitik / German Economic Association.

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