Market-Share Contracts with Asymmetric Information

CCP Working Paper No. 07-17

29 Pages Posted: 12 Sep 2007

See all articles by Adrian N. Majumdar

Adrian N. Majumdar

RBB Economics

Greg Shaffer

University of Rochester - Simon Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

In this paper, a dominant supplier and competitive fringe supply goods to a common buyer who has private information about the state of demand. We give conditions under which market-share contracts are profitable, and we show that, in some cases, the full-information outcome can be obtained (unlike in standard screening models, where the agents earns an information rent in the high state and demand is distorted in the low state). Our results also inform the antitrust debate on bundling, fidelity rebates and all-units discounts. We provide a new motive for a dominant firm to bundle its own product with a competitively supplied product (with ambiguous consequences for welfare), and we show that the market-share contracts, which are a subset of fidelity rebates, are more profitable than all-units discounts.

Keywords: Adverse selection, screening, bundling, fidelity rebates, all-units discounts

JEL Classification: L13, L41, L42

Suggested Citation

Majumdar, Adrian N. and Shaffer, Greg, Market-Share Contracts with Asymmetric Information (July 2007). CCP Working Paper No. 07-17, Available at SSRN: https://ssrn.com/abstract=1014008 or http://dx.doi.org/10.2139/ssrn.1014008

Adrian N. Majumdar (Contact Author)

RBB Economics ( email )

London WC1V 7BD
United Kingdom

Greg Shaffer

University of Rochester - Simon Business School ( email )

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