Discussion paper

DP17314 Tying under Double-Marginalization

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.


Inderst, R, F Griem and G Schaffer (eds) (2022), “DP17314 Tying under Double-Marginalization”, CEPR Press Discussion Paper No. 17314. https://cepr.org/publications/dp17314