Market-share contracts as facilitating practices
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 of its product (own-supplier contracts), intra- and interbrand competition cannot simultaneously be dampened. However, competition on all goods can simultaneously be dampened when market-share contracts are feasible. Compared to own-supplier contracts, the use of market-share contracts increases the dominant supplier's profit and, if demand is linear, lowers consumer surplus and welfare. Copyright (c) 2010, RAND..
Year of publication: |
2010
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Authors: | Inderst, Roman ; Shaffer, Greg |
Published in: |
RAND Journal of Economics. - RAND, ISSN 0741-6261. - Vol. 41.2010, 4, p. 709-729
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Publisher: |
RAND |
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