Naked exclusion with minimum‐share requirements

Abstract

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.

All‐units discounts as a partial foreclosure device

“…Calzolari and Denicolò () show that the market‐share discounts can be anticompetitive when buyers have private information. Chen and Shaffer () find that a less than 100% share requirement may be more effective in deterring entry than a 100% naked exclusionary contract in the model of Rasmusen, Ramseyer, and Wiley () and Segal and Whinston (). As a complement to those mentioned above, our article suggests that we should place a cautious eye on the volume‐ or share‐threshold‐based contracts when they are adopted by a dominant firm.…”

Market-Share Contracts with Vertical Externalities

“…2 Market-share contracts can be viewed as a general form of exclusive contracts that allow the market share of entrants to not be zero. By extending the model of Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000), Chen and Shaffer (2011) and Packalen (2011) show that the incumbent firm is able to partially exclude an entrant firm by offering market-share contracts even if there is no exclusive contract that the incumbent and the buyers are willing to sign.…”

Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence

“…Some key examples includeRasmusen, Ramseyer, and Wiley (1991),Segal and Whinston (2000), and more recently Asker and Bar-Isaac (2014) andChen and Shaffer (2014).13 In addition,Elhauge and Wickelgren (2012) andElhauge and Wickelgren (2014) explore the potential of loyalty contracts to soften price competition, andFigueroa, Ide, and Montero (2014) examines the role that rebates can play as a barrier to inefficient entry.14 This contrasts with the "naked exclusion" ofRasmusen, Ramseyer, and Wiley (1991), in which there is a single good.…”