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Market-Share Contracts with Vertical Externalities

Author

Listed:
  • Amemiya Yuki

    (Graduate School of Economics, Osaka University, 1-7 Machikaneyama, Toyonaka, Osaka 560-0043, Japan)

  • Kitamura Hiroshi

    () (Faculty of Economics, Kyoto Sangyo University, Motoyama, Kamigamo, Kita-Ku, Kyoto 603-8555, Japan)

  • Oshiro Jun

    (Department of Law and Economics, Okinawa University, 555 Kokuba, Naha, Okinawa 902-0075, Japan)

Abstract

We construct a model of market-share contracts with vertical externalities. When a dominant supplier offers a linear wholesale price to a retailer, vertical externalities, well-recognized as double-marginalization problems, arise in the vertical relation. The dominant supplier facing vertical externalities charges a wholesale price that is excessively high for both the vertical relation and social welfare. Under market-share contracts, the retailer can commit to increase the sales of goods produced by the dominant supplier for a lower wholesale price. We point out that this induces the vertical relation to engage in market-share contracts even in the absence of exclusionary effects in the upstream market. We also show that such contracts mitigate vertical externalities and improve social welfare.

Suggested Citation

  • Amemiya Yuki & Kitamura Hiroshi & Oshiro Jun, 2014. "Market-Share Contracts with Vertical Externalities," Asian Journal of Law and Economics, De Gruyter, vol. 5(1-2), pages 1-15, December.
  • Handle: RePEc:bpj:ajlecn:v:5:y:2014:i:1-2:p:15:n:1
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    References listed on IDEAS

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    1. Akgün Uğur & Chioveanu Ioana, 2013. "Loyalty Discounts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 655-685, September.
    2. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
    3. Sloev, Igor, 2007. "Market Share Discounts and Investment Incentives," MPRA Paper 13990, University Library of Munich, Germany.
    4. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
    5. Sreya Kolay & Greg Shaffer & Janusz A. Ordover, 2004. "All-Units Discounts in Retail Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 429-459, September.
    6. Durham, Yvonne, 2000. "An experimental examination of double marginalization and vertical relationships," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 207-229, June.
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