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Market-Share Contracts with Vertical Externalities

Author

Listed:
  • Amemiya Yuki

    (Graduate School of Economics, Osaka University, 1-7 Machikaneyama, Toyonaka, Osaka 560-0043, Japan)

  • Kitamura Hiroshi

    (Faculty of Economics, Kyoto Sangyo University, Motoyama, Kamigamo, Kita-Ku, Kyoto 603-8555, Japan)

  • Oshiro Jun

    (Department of Law and Economics, Okinawa University, 555 Kokuba, Naha, Okinawa 902-0075, Japan)

Abstract

We construct a model of market-share contracts with vertical externalities. When a dominant supplier offers a linear wholesale price to a retailer, vertical externalities, well-recognized as double-marginalization problems, arise in the vertical relation. The dominant supplier facing vertical externalities charges a wholesale price that is excessively high for both the vertical relation and social welfare. Under market-share contracts, the retailer can commit to increase the sales of goods produced by the dominant supplier for a lower wholesale price. We point out that this induces the vertical relation to engage in market-share contracts even in the absence of exclusionary effects in the upstream market. We also show that such contracts mitigate vertical externalities and improve social welfare.

Suggested Citation

  • Amemiya Yuki & Kitamura Hiroshi & Oshiro Jun, 2014. "Market-Share Contracts with Vertical Externalities," Asian Journal of Law and Economics, De Gruyter, vol. 5(1-2), pages 1-15, December.
    • Handle: RePEc:bpj:ajlecn:v:5:y:2014:i:1-2:p:15:n:1
    DOI: 10.1515/ajle-2013-0002
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    References listed on IDEAS

    as
    1. Sloev, Igor, 2007. "Market Share Discounts and Investment Incentives," MPRA Paper 13990, University Library of Munich, Germany.
    2. Blair,Roger D. & Lafontaine,Francine, 2011. "The Economics of Franchising," Cambridge Books, Cambridge University Press, number 9780521775892.
    3. Akgün Uğur & Chioveanu Ioana, 2013. "Loyalty Discounts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 655-685, September.
    4. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
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    7. Durham, Yvonne, 2000. "An experimental examination of double marginalization and vertical relationships," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 207-229, June.
    8. Philip G. Gayle, 2013. "On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 244-273, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    double-marginalization problems; market-share contracts; vertical restraints;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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