Market-Share Contracts with Asymmetric Information

Adrian Majumdar and Greg Shaffer
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Adrian Majumdar: Centre for Competition Policy, University of East Anglia
Greg Shaffer: Simon School of Business, University of Rochester

No 2007-17, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

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.

Keywords: Adverse Selection; Screening; Bundling; Fidelity Rebates; All-Units Discounts. (search for similar items in EconPapers)
JEL-codes: L13 L41 L42 (search for similar items in EconPapers)
Date: 2007-07-01
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Citations: View citations in EconPapers (3)

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