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Market Share Exclusion

39 Pages Posted: 9 Apr 2009 Last revised: 11 Aug 2011

Mikko Packalen

University of Waterloo - Department of Economics

Date Written: August 10, 2011

Abstract

A market share exclusion contract between a seller and a buyer prevents rival sellers from competing for a share of the buyer's purchases. For non-discriminatory contracting we show that, unlike exclusion through exclusive dealing, market share exclusion can be profitable even when buyers coordinate on the best equilibrium in the contract-acceptance subgame. The condition for the profitability of market share exclusion is characterized in terms of straightforward economic concepts. With discriminatory contracting market share exclusion contracts are generally less profitable than exclusive dealing contracts. The motive for employing market share exclusion contracts, which welfare impacts have not been well understood, instead of exclusive dealing contracts, which have been the focus of both theory and policy, may thus often be the avoidance of scrutiny by competition authorities rather than some more direct economic advantage of market share exclusion over exclusive dealing. However, we also show that market share exclusion decreases both buyer and total surplus. Hence, competition authorities should not view exclusion through exclusive dealing as a pre-requisite for the possibility of anti-competitive effects from exclusionary contracting.

Keywords: Market Share Exclusion, Exclusive Dealing, Exclusion

JEL Classification: L42, K11, K21

Suggested Citation

Packalen, Mikko, Market Share Exclusion (August 10, 2011). Available at SSRN: https://ssrn.com/abstract=1375704 or http://dx.doi.org/10.2139/ssrn.1375704

Mikko Packalen (Contact Author)

University of Waterloo - Department of Economics ( email )

Waterloo, Ontario N2L 3G1
Canada

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