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  3. American Economic Journal: Microeconomics
  4. February 2019
  5. Market Share Contracts, Exclusive Dealing, and the Integer Problem

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Market Share Contracts, Exclusive Dealing, and the Integer Problem

  • Zhijun Chen
  • Greg Shaffer
American Economic Journal: Microeconomics
vol. 11, no. 1, February 2019
(pp. 208–42)
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Abstract

This paper compares exclusive dealing and market share contracts in a model of naked exclusion. We discuss how the contracts work and identify a fundamental trade-off 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.

Citation

Chen, Zhijun, and Greg Shaffer. 2019. "Market Share Contracts, Exclusive Dealing, and the Integer Problem." American Economic Journal: Microeconomics 11 (1): 208–42. DOI: 10.1257/mic.20160350

Additional Materials

JEL Classification

  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • D86 Economics of Contract: Theory
  • K12 Contract Law
  • L13 Oligopoly and Other Imperfect Markets
  • L14 Transactional Relationships; Contracts and Reputation; Networks