Competition in non-linear prices, exclusionary contracts, and market-share discounts
نویسنده
چکیده
We study the effects of exclusionary contracts and market-share discounts (i.e., discounts conditioned on the share a firm receives of the customer’s total purchases) in an adverse selection model where firms supply differentiated products and compete in non-linear prices. We show that exclusionary contracts intensify the competition among the firms, increasing consumer surplus, improving efficiency, and reducing profits. Firms would gain if these contracts were prohibited, but are caught in a prisoner’s dilemma if they are permitted. In this case, allowing firms to offer also market-share discounts unambiguously weakens competition, reducing efficiency and harming consumers. However, starting from a situation where exclusionary contracts are prohibited, the effect of market-share discounts (which include exclusionary contracts as a limiting case) is ambiguous.
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