Tuesday, May 19, 2009
Posted by D. Daniel Sokol
ABSTRACT: A market share exclusion contract between a seller and a buyer prevents rival sellers from competing for a share of the buyer's purchases. We examine both non-discriminatory and discriminatory market share exclusion contracts, and compare them with exclusive dealing contracts. For non-discriminatory contracting we show that, unlike exclusion through exclusive dealing, market share exclusion can be profitable. The condition for the profitability of market share exclusion is characterized in terms of straightforward economic concepts. For discriminatory contracting we show that the ability to offer market share exclusion contracts does not provide an advantage over the ability to offer only exclusive dealing contracts. We also show that market share exclusion always decreases both buyer surplus and total surplus. Hence, competition authorities should not view exclusion through exclusive dealing as a pre-requisite for the possibility of anti-competitive effect from exclusionary contracting.