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Market-Share Contracts with Asymmetric Information

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  • Adrian Majumdar
  • Greg Shaffer

Abstract

"In this paper, a dominant firm and competitive fringe supply substitute goods to a retailer who has private information about demand. We show that it is profitable for the dominant firm to condition payment on how much the retailer buys from the fringe (market-share contracts). The dominant firm thereby creates countervailing incentives for the retailer and, in some cases, is able to obtain the full-information outcome (unlike in standard screening models, where the agent earns an information rent in the high-demand state and output is distorted in the low-demand state). Our results have implications for fidelity rebates, all-units discounts, and competition policy. Although some crowding out of the fringe may occur when demand is low, we show that market-share contracts need not be harmful for welfare." Copyright (c) 2009 Wiley Periodicals, Inc..

Suggested Citation

  • Adrian Majumdar & Greg Shaffer, 2009. "Market-Share Contracts with Asymmetric Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 393-421, June.
  • Handle: RePEc:bla:jemstr:v:18:y:2009:i:2:p:393-421
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    Citations

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    Cited by:

    1. Philippe Choné & Laurent Linnemer, 2015. "Nonlinear pricing and exclusion: I. buyer opportunism," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 217-240, June.
    2. Zhijun Chen & Greg Shaffer, 2016. "Are Market-Share Contracts a Poor Man’s Exclusive Dealing?," Monash Economics Working Papers 44-16, Monash University, Department of Economics.
    3. Fabian Herweg & Daniel Müller, 2014. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Economic Journal, Royal Economic Society, vol. 124(577), pages 776-804, June.
    4. Johannes Paha, 2017. "Wholesale Pricing with Incomplete Information about Private Label Products," MAGKS Papers on Economics 201736, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Calzolari, Giacomo & Denicolò, Vincenzo, 2011. "On the anti-competitive effects of quantity discounts," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 337-341, May.
    6. Roman Inderst & Greg Shaffer, 2010. "Market-share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729.
    7. Ordover, Janusz A. & Shaffer, Greg, 2013. "Exclusionary discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 569-586.
    8. 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.
    9. Katja Greer, 2013. "Limiting rival's efficiency via conditional discounts," Working Papers 132, Bavarian Graduate Program in Economics (BGPE).
    10. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    11. Eberhard Feess & Ansgar Wohlschlegel, 2010. "All-Unit Discounts and the Problem of Surplus Division," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(3), pages 161-178, November.

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