Price-volume agreements: A one principal/two agents model

We present a one principal/two agents model of price-volume agreement, which involves one buyer (the principal) and competition between two manufacturers (the two agents). A theoretical analysis is presented, showing that, in accordance with empirical evidence from the literature on price-volume agreements in the pharmaceutical sector, manufacturers’ competition in a price-volume agreement scheme can decrease buyer’s expenditure especially when the second manufacturer, which has the possibility to enter (or not enter) later, has sufficiently small marginal production cost. Moreover, it is shown that the adoption of a price-volume agreement scheme for the first manufacturer can benefit the buyer with respect to the case in which single-price contracts are proposed to the former. The paper contributes to fill a gap in the literature about theoretical models of price-volume agreements, which are still scarce according to a recent review.