Market Share Contracts in B2B Procurement Settings with Heterogeneous User Preferences

Abstract

M arket share contracts, a form of loyalty discounts, where the discount is contingent on the buyer meeting or exceeding a target share of total procurement, are used in many business to business (B2B) settings. We study the impact of such contracts on demand allocation, prices, and welfare in a setting where a single central B2B buyer procures multiple units of a product on behalf of a set of users with heterogeneous preferences. We find that linear pricing creates a demand distortion, which goes away with the use of market share contracts. These contracts serve as strategic tools for vendors whose products are strongly preferred by a substantial fraction of the users in the buying organization to shift the locus of competition and extract away rents from weaker rivals, and sometimes from buyers. The impact of such contracts on the welfare of the buyers is therefore ambiguous, but when these contracts are used, the overall surplus goes up as disutility from demand distortion is avoided. While both quantity threshold contracts and two-part tariffs can replicate the efficiency properties of market share contracts when demand is deterministic, they cannot guarantee the avoidance of demand distortion when buyer demand is uncertain.

Pricing on‐demand services: Alternative ways of combining usage and access fees

“…This advantage in market coverage lends significance to the previous “nonresult” because together these results establish dominance for the menu over the 2PT 13 . Mantena and Saha (2022) suggest a need to analyze broader range of pricing schemes; this is a crucial result especially with regard to inter‐firm transactions such as manufacturer–retailer contracts that rely on 2PTs for coordination. For one, such coordination works best only for a bilateral contract between one manufacturer and one retailer; making the same open offer to multiple retailers would require suitable consideration of within‐retailer heterogeneity.…”

Supplier-base concentration and efficiency: the moderating roles of R&D expenditure and market share

“…Buyers' market share increases suppliers' dependency and promotes a more balanced dependency structure by providing stable and large orders to suppliers. A large market share indicates large volumes of purchases from suppliers (Mantena and Saha, 2022). This not only brings in stable sales and large amounts of revenue to suppliers but also helps suppliers to achieve economies of scale and reduces costs (Mantena and Saha, 2022).…”

“…A large market share indicates large volumes of purchases from suppliers (Mantena and Saha, 2022). This not only brings in stable sales and large amounts of revenue to suppliers but also helps suppliers to achieve economies of scale and reduces costs (Mantena and Saha, 2022). In addition, having close relationships with buyers with a large market share is also a signal that these suppliers are competitive.…”

“…The benefits of supplier-base concentration are also more salient for buyers with a high market share. A high market share indicates that buyers normally place large orders (Mantena and Saha, 2022). If these orders are concentrated in the hands of a few suppliers, the effect of economies of scale will be more salient.…”

Adoption of Enabling E-Commerce Technologies for Indonean SMEs

“…As a result, it may be more difficult to take advantage of the opportunities. This is one of the concepts for web-centric B2B procurement described by Mantena and Saha in [4] as a third-party marketplace. With the high cost of finding the buyer or seller and the importance of pricing and availability, the B2B market is well-suited for marketplaces that are fragmented (on either the buyer or seller side).…”