Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, November 2, 2010

Market-Share Contracts as Facilitating Practices

Posted by D. Daniel Sokol

Roman Inderst (University of Frankfurt and Imperial College London) and Greg Shaffer (Rochester) address Market-Share Contracts as Facilitating Practices.

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/11/market-share-contracts-as-facilitating-practices.html

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