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Naked exclusion with minimum-share requirements

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  • Zhijun Chen
  • Greg Shaffer

Abstract

type="main"> We consider a class of contracts in which buyers commit to giving a seller some minimum share of their total purchases. We show that such contracts can be used by an incumbent seller to reduce the probability of entry by a rival seller when the incumbent can commit to its selling price as part of the contract. We further show that such contracts can be profitable for the incumbent even when exclusive dealing would not be, and even when buyers can coordinate their accept-or-reject decisions. The average price paid by the buyers will be higher and welfare will be lower whether or not the incumbent's exclusionary conduct turns out to be successful in preventing entry.

Suggested Citation

  • Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    • Handle: RePEc:bla:randje:v:45:y:2014:i:1:p:64-91
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12042
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    References listed on IDEAS

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    Cited by:

    1. Zhijun Chen & Greg Shaffer, 2016. "Are Market-Share Contracts a Poor Man’s Exclusive Dealing?," Monash Economics Working Papers 44-16, Monash University, Department of Economics.
    2. Giacomo Calzolari & Vincenzo Denicolò, 2015. "Exclusive Contracts and Market Dominance," American Economic Review, American Economic Association, vol. 105(11), pages 3321-3351, November.
    3. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.
    4. Chen, Ying & Zápal, Jan, 2024. "Naked exclusion with heterogeneous buyers," International Journal of Industrial Organization, Elsevier, vol. 95(C).
    5. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    6. Jeon, Doh-Shin & Menicucci, Domenico, 2019. "On the unprofitability of buyer groups when sellers compete," Games and Economic Behavior, Elsevier, vol. 115(C), pages 265-288.
    7. Bogdan Genchev & Julie Holland Mortimer, 2016. "Empirical Evidence on Conditional Pricing Practices," NBER Working Papers 22313, National Bureau of Economic Research, Inc.
    8. Ravi Mantena & Rajib L. Saha, 2022. "Market Share Contracts in B2B Procurement Settings with Heterogeneous User Preferences," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1290-1308, March.
    9. John Asker & Heski Bar-Isaac, 2010. "Exclusionary Minimum Resale Price Maintenance," NBER Working Papers 16564, National Bureau of Economic Research, Inc.
    10. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    11. Ke Liu & Xiaoxuan Meng, 2021. "Exclusive dealing when upstream displacement is possible," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 830-843, November.
    12. DeGraba, Patrick, 2013. "Naked exclusion by a dominant input supplier: Exclusive contracting and loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 516-526.
    13. Zhijun Chen & Greg Shaffer, 2019. "Market Share Contracts, Exclusive Dealing, and the Integer Problem," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 208-242, February.
    14. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    15. Greer, Katja, 2013. "Limiting rival's efficiency via conditional discounts," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79730, Verein für Socialpolitik / German Economic Association.
    16. Katja Greer, 2013. "Limiting rival's efficiency via conditional discounts," Working Papers 132, Bavarian Graduate Program in Economics (BGPE).
    17. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.
    18. Chen, Ying & Zápal, Jan, 2022. "Sequential vote buying," Journal of Economic Theory, Elsevier, vol. 205(C).
    19. Dawen Meng & Guoqiang Tian, 2021. "The competitive and welfare effects of long-term contracts with network externalities and bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 337-375, July.
    20. Yong Chao & Guofu Tan & Adam Chi Leung Wong, 2018. "All†units discounts as a partial foreclosure device," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 155-180, March.
    21. Ulsaker, Simen A., 2020. "Exclusionary contracts and incentives to innovate," Discussion Paper Series in Economics 5/2020, Norwegian School of Economics, Department of Economics.
    22. Ulsaker, Simen A., 2020. "Competing buyers, rent extraction and inefficient exclusion," International Journal of Industrial Organization, Elsevier, vol. 68(C).
    23. Calzolari, Giacomo & Denicolo, Vincenzo, 2020. "Exploiting rivals' strengths," CEPR Discussion Papers 15520, C.E.P.R. Discussion Papers.
    24. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).

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