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  4. October 2013
  5. Competition with Exclusive Contracts and Market-Share Discounts

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Competition with Exclusive Contracts and Market-Share Discounts

  • Giacomo Calzolari
  • Vincenzo Denicolò
American Economic Review
vol. 103, no. 6, October 2013
(pp. 2384–2411)
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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

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

Additional Materials

JEL Classification

  • 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