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Market-Share Contracts with Asymmetric Information

Author

Listed:
  • Adrian Majumdar

    () (Centre for Competition Policy, University of East Anglia)

  • Greg Shaffer

    () (Simon School of Business, University of Rochester)

Abstract

In this paper, a dominant supplier and competitive fringe supply goods to a common buyer who has private information about the state of demand. We give conditions under which market-share contracts are profitable, and we show that, in some cases, the full-information outcome can be obtained (unlike in standard screening models, where the agents earns an information rent in the high state and demand is distorted in the low state). Our results also inform the antitrust debate on bundling, fidelity rebates and all-units discounts. We provide a new motive for a dominant firm to bundle its own product with a competitively supplied product (with ambiguous consequences for welfare), and we show that the market-share contracts, which are a subset of fidelity rebates, are more profitable than all-units discounts.

Suggested Citation

  • Adrian Majumdar & Greg Shaffer, 2007. "Market-Share Contracts with Asymmetric Information," Working Papers 07-17, Centre for Competition Policy, University of East Anglia.
  • Handle: RePEc:ccp:wpaper:wp07-17
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP07-17.pdf
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    More about this item

    Keywords

    Adverse selection; screening; bundling; fidelity rebates; all-units discounts;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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