Tying under Double-Marginalization

Roman Inderst, Fabian Griem and Greg Schaffer

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: In a model of contractual inefficiencies due to double-marginalization, we analyze the practice of tied rebates that incentivizes retailers to purchase multiple products from the same manufacturer. We isolate two opposing effects: a surplus-sharing effect that enhances efficiency and a rent-extraction effect that reduces efficiency. The overall effect is more likely to be negative when the manufacturer has a particularly strong brand for which the retailers alternatives are much inferior. Foreclosure of a more efficient provider of the manufacturers weaker product is not a sufficient condition for a welfare loss. Our key positive implication relates to the seemingly inefficient introduction of weaker products by the owners of particularly strong brands.

Keywords: contractual inefficiencies; double-marginalization; competition; surplus-sharing effect; rent-extraction effect; efficiency; brand strength (search for similar items in EconPapers)
JEL-codes: D43 L14 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-cta, nep-mic and nep-reg
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https://www.econstor.eu/bitstream/10419/254324/1/T ... -Marginalization.pdf (application/pdf)

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Working Paper: Tying under Double-Marginalization (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:254324

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