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Naked Exclusion

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Author Info

  • Rasmusen, Eric B
  • Ramseyer, J Mark
  • Wiley, John S, Jr

Abstract

Ordinarily, a monopoly cannot increase its profits by asking customers to sign agreements not to deal with potential competitors. If, however, there are one hundred customers and the minimum efficient scale requires serving fifteen, the monopoly need only lock up eighty-six customers to forestall entry. If each customer believes that the others will sign, each also believes that no rival seller will enter. Hence, an individual customer loses nothing by signaling the exclusionary agreement and will indeed sign. Thus, naked exclusion can be profitable. Copyright 1991 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 81 (1991)
Issue (Month): 5 (December)
Pages: 1137-45

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Handle: RePEc:aea:aecrev:v:81:y:1991:i:5:p:1137-45

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