【Micro/Theory Seminar】Market-Share Contracts by a Dominant Firm

  • 研討會日期 : 2023-07-18
  • 時間 : 14:30
  • 主講人 : Professor Guofu Tan
  • 地點 : Conference Room B110
  • 演講者簡介 : Professor Guofu Tan received his PhD at the California Institute of Technology in 1990. He is currently a Professor of Economics at the University of Southern California. His research focuses on business strategy and industrial organization, competition and regulatory policies, auction theory, and microeconomics with applications.
  • 演講摘要 : We study the incentives of a dominant firm to adopt market-share contracts (MSCs) when competing with a small rival. We focus on a simple class of MSCs, which specifies a per-unit price conditional on the share of the buyer's purchase from the firm - as a fraction of the total purchase - satisfying a minimum threshold. In our setting, the dominant firm first offers an MSC, after which its rival offers a per-unit price. After seeing both offers, the buyer decides whether to accept the MSC and obey its market-share requirement or instead reject the MSC and single-source from the rival firm. The subgame-perfect equilibrium outcome of this game is shown as the solution to a constrained maximization problem, and we provide conditions under which a full-exclusivity contract and a less-than-100% MSC arise in equilibrium, respectively. We identify two major economic factors that are crucial in determining the types of contracts and their welfare implications: the dominant firm's competitive advantage over its rival and product substitutability between the two firms. The smaller the degree of product substitutability, the larger the competitive advantage required to justify full exclusivity. Compared to linear pricing, the MSC adopted by the dominant firm generally reduces the rival's product and tends to reduce the total surplus and the buyer's surplus when the competitive advantage of the dominant firm is strong.