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Market Share Contracts, Exclusive Dealing, and the Integer Problem

Author

Listed:
  • Zhijun Chen
  • Greg Shaffer

Abstract

This paper compares exclusive dealing and market share contracts in a model of naked exclusion. We discuss how the contracts work and identify a fundamental trade-off that arises: market share contracts are better at maximizing a seller's benefit from foreclosure (because they allow the seller to obtain any foreclosure level it desires), whereas exclusive-dealing contracts are better at minimizing a seller's cost of foreclosure (because, unlike with market share contracts, the seller does not have to overpay for the units it forecloses). We identify settings in which each can be more profitable and show that welfare can be worse under market share contracts.

Suggested Citation

  • Zhijun Chen & Greg Shaffer, 2019. "Market Share Contracts, Exclusive Dealing, and the Integer Problem," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 208-242, February.
    • Handle: RePEc:aea:aejmic:v:11:y:2019:i:1:p:208-42
    Note: DOI: 10.1257/mic.20160350
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    Cited by:

    1. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Johannes Paha, 2025. "Wholesale Pricing with Asymmetric Information About the Quality of a Private Label," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(1), pages 71-88, January.
    3. Calzolari, Giacomo & Denicolo, Vincenzo, 2020. "Exploiting rivals' strengths," CEPR Discussion Papers 15520, C.E.P.R. Discussion Papers.
    4. Chen, Ying & Zápal, Jan, 2024. "Naked exclusion with heterogeneous buyers," International Journal of Industrial Organization, Elsevier, vol. 95(C).
    5. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    6. Jiyun Cao & Arijit Mukherjee, 2024. "Foreign Direct Investment and Technology Licensing in a Polluting Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2361-2399, September.
    7. Johannes Paha, 2023. "Wholesale Pricing with Asymmetric Information about a Private Label," Journal of Industrial Economics, Wiley Blackwell, vol. 71(4), pages 1121-1145, December.
    8. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Defending Home against Giants: Exclusive Dealing as a Survival Strategy for Local Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 441-463, June.
    9. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    10. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.
    11. Katja Greer, 2024. "Learning‐by‐doing and contract choice," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(3), pages 706-747, August.
    12. Schutz, Nicolas, 2024. "Competition with exclusive contracts in vertically related markets: An equilibrium non-existence result," International Journal of Industrial Organization, Elsevier, vol. 96(C).

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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