Market-share contracts with asymmetric information

Majumdar, Adrian and Shaffer, Greg (2009) Market-share contracts with asymmetric information. Journal of Economics & Management Strategy, 18 (2). pp. 393-421. ISSN 1530-9134

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Abstract

In this paper, a dominant firm and competitive fringe supply substitute goods to a retailer who has private information about demand. We show that it is profitable for the dominant firm to condition payment on how much the retailer buys from the fringe (market-share contracts). The dominant firm thereby creates countervailing incentives for the retailer and, in some cases, is able to obtain the full-information outcome (unlike in standard screening models, where the agent earns an information rent in the high-demand state and output is distorted in the low-demand state). Our results have implications for fidelity rebates, all-units discounts, and competition policy. Although some crowding out of the fringe may occur when demand is low, we show that market-share contracts need not be harmful for welfare.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > Norwich Business School Faculty of Social Sciences > School of Economics
Depositing User:	Nicola Secker
Date Deposited:	01 Apr 2011 08:06
Last Modified:	10 Jan 2024 01:21
URI:	https://ueaeprints.uea.ac.uk/id/eprint/27815
DOI:	10.1111/j.1530-9134.2009.00218.x

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