Business Intelligence

Rent Shifting, Exclusion And Market-Share Contracts

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Executive Summary

The authors study rent-shifting in a sequential contracting environment in which two sellers negotiate with a common buyer. They find that the ability of the buyer and the first seller to extract surplus from the second seller depends on each firm's bargaining power and on whether the first seller can offer to sell its product at prices below cost. It also depends, among other things, on whether the buyer and the first seller's contract can depend on the quantities purchased of both sellers' products (market-share contracts) or only on the quantity purchased of the first seller's product.

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