Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/254324 
Year of Publication: 
2022
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
In a model of contractual inefficiencies due to double-marginalization, we analyze the practice of tied rebates that incentivizes retailers to purchase multiple products from the same manufacturer. We isolate two opposing effects: a surplus-sharing effect that enhances efficiency and a rent-extraction effect that reduces efficiency. The overall effect is more likely to be negative when the manufacturer has a particularly strong brand for which the retailers alternatives are much inferior. Foreclosure of a more efficient provider of the manufacturers weaker product is not a sufficient condition for a welfare loss. Our key positive implication relates to the seemingly inefficient introduction of weaker products by the owners of particularly strong brands.
Subjects: 
contractual inefficiencies
double-marginalization
competition
surplus-sharing effect
rent-extraction effect
efficiency
brand strength
JEL: 
L14
D43
Document Type: 
Working Paper

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