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Market Share Exclusion

Author

Listed:
  • Mikko Packalen

    (Department of Economics, University of Waterloo)

Abstract

A market share exclusion contract between a seller and a buyer prevents rival sellers from competing for a share of the buyer's purchases. For non-discriminatory contracting we show that, unlike exclusion through exclusive dealing, market share exclusion can be profitable even when buyers coordinate on the best equilibrium in the contract-acceptance subgame. The condition for the profitability of market share exclusion is characterized in terms of straightforward economic concepts. With discriminatory contracting market share exclusion contracts are generally less profitable than exclusive dealing contracts. The motive for employing market share exclusion contracts, which welfare impacts have not been well understood, instead of exclusive dealing contracts, which have been the focus of both theory and policy, may thus often be the avoidance of scrutiny by competition authorities rather than some more direct economic advantage of market share exclusion over exclusive dealing. However, we also show that market share exclusion decreases both buyer and total surplus. Hence, competition authorities should not view exclusion through exclusive dealing as a pre-requisite for the possibility of anti-competitive effects from exclusionary contracting.

Suggested Citation

  • Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
  • Handle: RePEc:wat:wpaper:1103
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    File URL: http://www.economics.uwaterloo.ca/documents/11-003MP.pdf
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
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    Cited by:

    1. 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.
    2. 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.
    3. Katja Greer, 2013. "Limiting rival's efficiency via conditional discounts," Working Papers 132, Bavarian Graduate Program in Economics (BGPE).
    4. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.

    More about this item

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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