We study the welfare effects of price discrimination in a duopoly with both captive and contested consumers. Using a unified information design approach, we characterize the best and worst market segmentations for producer surplus, consumer surplus, and social surplus. The firm-optimal segmentation, which divides the market into two nested segments, consistently reduces consumer welfare relative to uniform pricing. The consumer-optimal segmentation, which divides the market into a symmetric segment and a nested segment, may sometimes yield a Pareto improvement but does not necessarily coincide with the social-optimal segmentation. (JEL D43, D83)
We analyze oligopolistic competition in which firms use contracts contingent on what buyers purchase from their rivals. We present a new mechanism through which a dominant firm, by using these contracts, can gain more from exploiting its rivals than from foreclosing them. This exploitation is achieved by requiring buyers to source at least a certain share of their total requirements from the dominant firm, though less than 100 percent. By optimally designing these contracts, the dominant firm can earn as much as it would if it were to acquire the rivals' specific technological and marketing capabilities at no cost. (JEL D43, D82, D86, K21, L14, M31)