Market-Share Contracts as Facilitating Practices

Roman Inderst and Greg Shaffer
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Greg Shaffer: University of Rochester and University of East Anglia

No 2010-13, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: This article investigates how the use of contracts that condition discounts on the share a supplier receives of a retailer's total purchases (market-share contracts) may affect market outcomes. The case of a dominant supplier that distributes its product through retailers that also sell substitute products is considered. It is found that when the supplier's contracts can only depend on how much a retailer purchases its product (own-supplier contracts), both intra- and inter-brand competition cannot simultaneously be dampened. However, competition on all goods can simultaneously be dampened when market-share contracts are feasible. Compared to ownsupplier contracts, the use of market-share contracts increases the dominant supplier's profit and, if demand is linear, lowers consumer surplus and welfare.

Keywords: Exclusive dealing; Loyalty rebates; All-unit discounts (search for similar items in EconPapers)
Date: 2010-05-01
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Citations: View citations in EconPapers (37)

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Journal Article: Market‐share contracts as facilitating practices (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:uea:ueaccp:2010_13

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