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American Economic Review: Vol. 103 No. 6 (October 2013)

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Competition with Exclusive Contracts and Market-Share Discounts

Article Citation

Calzolari, Giacomo, and Vincenzo Denicolò. 2013. "Competition with Exclusive Contracts and Market-Share Discounts." American Economic Review, 103(6): 2384-2411.

DOI: 10.1257/aer.103.6.2384

Abstract

We analyze firms that compete by means of exclusive contracts and market-share discounts (conditional on the seller's share of customers' total purchases). With incomplete information about demand, firms have a unilateral incentive to use these contractual arrangements to better extract buyers' informational rents. However, exclusive contracts intensify competition, thus reducing prices and profits and (in all Pareto undominated equilibria) increasing welfare. Market-share discounts, by contrast, produce a double marginalization effect that leads to higher prices and harms buyers. We discuss the implications of these results for competition policy

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Authors

Calzolari, Giacomo (U Bologna)
Denicolò, Vincenzo (U Leicester and U Bologna)

JEL Classifications

D43: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
D83: Search; Learning; Information and Knowledge; Communication; Belief
D86: Economics of Contract: Theory
K21: Antitrust Law
L14: Transactional Relationships; Contracts and Reputation; Networks
L42: Vertical Restraints; Resale Price Maintenance; Quantity Discounts


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