IDEAS home Printed from https://ideas.repec.org/p/uea/ueaccp/2007_17.html
   My bibliography  Save this paper

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 proï¬ table, and we show that, in some cases, the full-information outcome can be obtained (unlike in standard screening models, where the agent 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, ï¬ delity rebates and all-units discounts. We provide a new motive for a dominant ï¬ rm to bundle its own product with a competitively supplied product (with ambiguous consequences for welfare), and we show that market-share contracts, which are a subset of ï¬ delity rebates, are more proï¬ table than all-units discounts.

Suggested Citation

  • Adrian Majumdar & Greg Shaffer, 2007. "Market-Share Contracts with Asymmetric Information," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-17, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2007_17
    as

    Download full text from publisher

    File URL: https://ueaeco.github.io/working-papers/papers/ccp/CCP-07-17.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Bruce Kobayashi, 2005. "The Economics of Loyalty Rebates and Antitrust Law in the United States," CPI Journal, Competition Policy International, vol. 1.
    3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    4. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    5. Spector, David, 2005. "Loyalty Rebates : An Assessment of Competition Concerns and a Proposed Rule of Reason," CEPREMAP Working Papers (Docweb) 0514, CEPREMAP.
    6. David Spector, 2005. "Loyalty Rebates: An Assessment of Competition Concerns and a Proposed Structured Rule of Reason," Post-Print halshs-00754113, HAL.
    7. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    8. Alberto Heimler, 2005. "Below-Cost Pricing and Loyalty-Inducing Discounts: Are They Restrictive and If So, When?," CPI Journal, Competition Policy International, vol. 1.
    9. David Spector, 2005. "Loyalty Rebates: An Assessment of Competition Concerns and a Proposed Structured Rule of Reason," CPI Journal, Competition Policy International, vol. 1.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sloev, Igor, 2007. "Market Share Discounts and Investment Incentives," MPRA Paper 13990, University Library of Munich, Germany.
    2. Liliane Giardino-Karlinger, 2016. "Vertical Relations in the Presence of Competitive Recycling," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 25-49, March.
    3. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roman Inderst & Greg Shaffer, 2010. "Market‐share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729, December.
    2. 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.
    3. Ordover, Janusz A. & Shaffer, Greg, 2013. "Exclusionary discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 569-586.
    4. Janusz Ordover & Greg Shaffer, 2007. "Exclusionary Discounts," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-13, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    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. Calzolari, Giacomo & Denicolo, Vincenzo, 2010. "Competitive quantity discounts," CEPR Discussion Papers 8144, C.E.P.R. Discussion Papers.
    7. David E. Mills, 2017. "Inducing Cooperation with a Carrot Instead of a Stick," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(2), pages 245-261, March.
    8. Nicholas Economides, 2014. "Bundling and Tying," Working Papers 14-22, NET Institute.
    9. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    10. David Rietzke & Yu Chen, 2020. "Push or pull? Performance‐pay, incentives, and information," RAND Journal of Economics, RAND Corporation, vol. 51(1), pages 301-317, March.
    11. Hoppe, Eva I. & Schmitz, Patrick W., 2015. "Do sellers offer menus of contracts to separate buyer types? An experimental test of adverse selection theory," Games and Economic Behavior, Elsevier, vol. 89(C), pages 17-33.
    12. Helm, Carsten & Wirl, Franz, 2014. "The principal–agent model with multilateral externalities: An application to climate agreements," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 141-154.
    13. Carsten Helm & Franz Wirl, 2011. "International Environmental Agreements: Incentive Contracts with Multilateral Externalities," Working Papers V-336-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    14. Jian Chen & He Huang & Liming Liu & Hongyan Xu, 2021. "Price Delegation or Not? The Effect of Heterogeneous Sales Agents," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1350-1364, May.
    15. Ravi Mantena & Rajib L. Saha, 2022. "Market Share Contracts in B2B Procurement Settings with Heterogeneous User Preferences," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1290-1308, March.
    16. repec:old:wpaper:336-11 is not listed on IDEAS
    17. repec:zbw:hohpro:336-11 is not listed on IDEAS
    18. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    19. Péter Eso & Balázs Szentes, 2004. "The Price of Advice," Discussion Papers 1416, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    20. Nicolas Gruyer, 2009. "Optimal Auctions When A Seller Is Bound To Sell To Collusive Bidders," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 835-850, December.
    21. Martimort, David & Stole, Lars A., 2022. "Participation constraints in discontinuous adverse selection models," Theoretical Economics, Econometric Society, vol. 17(3), July.
    22. Isabelle Brocas, 2005. "Multistage Contracting with Applications to R&D and Insurance Policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 317-346, May.

    More about this item

    Keywords

    Adverse Selection; Screening; Bundling; Fidelity Rebates; All-Units Discounts.;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uea:ueaccp:2007_17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Juliette Hardmad (email available below). General contact details of provider: https://edirc.repec.org/data/esueauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.