When Competition for Exclusivity Raises Prices: Rebates, Pricing Rules, and the Insulin Puzzle

Competition for an exclusive position between equally matched suppliers is usually thought to help consumers: when suppliers are close substitutes, sole sourcing turns ordinary rivalry into a winner-take-all auction that drives wholesale prices toward cost. We show that this intuition can fail — and fail dramatically — whenever two conditions hold. First, suppliers bid along more than one contract margin (e.g. using both a wholesale price and a rebate or fixed fee), and second, the intermedi