Market-Share Contracts with Vertical Externalities

Asian Journal of Law and Economics, Vol. 5(1-2), 1-15, December 2014

17 Pages Posted: 5 Dec 2012 Last revised: 9 Jan 2015

See all articles by Yuki Amemiya

Yuki Amemiya

Osaka University - Graduate School of Economics

Hiroshi Kitamura

Kyoto Sangyo University

Jun Oshiro

University of the Ryukyus

Date Written: December 13, 2014

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.

Keywords: double-marginalization problems, market-share contracts, vertical restraints

JEL Classification: L10, L40, L42

Suggested Citation

Amemiya, Yuki and Kitamura, Hiroshi and Oshiro, Jun, Market-Share Contracts with Vertical Externalities (December 13, 2014). Asian Journal of Law and Economics, Vol. 5(1-2), 1-15, December 2014, Available at SSRN: https://ssrn.com/abstract=2184740 or http://dx.doi.org/10.2139/ssrn.2184740

Yuki Amemiya

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

Hiroshi Kitamura (Contact Author)

Kyoto Sangyo University ( email )

Motoyama, Kamigamo, Kita-Ku
Kyoto, Kyoto 603-8555
Japan

HOME PAGE: http://sites.google.com/view/hiroshikitamura/home

Jun Oshiro

University of the Ryukyus ( email )

Okinawa
Japan

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