LUMP-SUM QUOTA BONUSES AND OTHER VERTICAL RESTRAINTS WITH COURNOT RETAILERS

Lump-sum quota bonuses are a specific type of quota bonus that provides a lump-sum transfer from a manufacturer to a retailer when the retailer’s sales exceed a pre- determined quota. This paper explores whether lump-sum quota bonuses and two other vertical restraints, two-part tariffs and resale price maintenance, can resolve the double marginalization problem when the market size is uncertain. It emerges that only lump-sum quota bonuses can always resolve the double marginalization problem in our two-state case.