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Market-Share Contracts, Exclusive Dealing, and the Integer Problem

Zhijun Chen () and Greg Schaffer

No 08-18, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Exclusionary contracts have long been a focus of antitrust law and the subject of much scholarly debate. This paper compares two types of exclusionary contracts, exclusive-dealing and market-share contracts, in a model of naked exclusion. We discuss the different mechanisms through which each works and identify a fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure (because they allow the seller to obtain any foreclosure level it desires) whereas exclusive-dealing contracts are better at minimizing a seller’s cost of foreclosure (because, unlike with market-share contracts, the seller does not have to overpay for the units it forecloses). We identify settings in which each can be more profitable and show that welfare can be worse under market-share contracts

Keywords: Exclusive dealing; Market-share contracts; Dominant Firm; Foreclosure (search for similar items in EconPapers)
JEL-codes: D86 K21 L13 L41 L42 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2019-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-law
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Journal Article: Market Share Contracts, Exclusive Dealing, and the Integer Problem (2019) Downloads
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