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Naked Exclusion, Efficient Breach, and Downstream Competition

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  • John Simpson
  • Abraham L. Wickelgren
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    Abstract

    Previous papers by Eric B. Rasmusen, J. Mark Ramseyer, and John S. Wiley, Jr. (1991) and Ilya R. Segal and Michael D. Whinston (2000) argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers. We first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages. We then show, however, that exclusive contracts can inefficiently deter entry if buyers are downstream competitors, even in the absence of scale economies and even if breach is possible. (JEL D86, K21, L11 , L13, L14, L40)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.4.1305
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    Bibliographic Info

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

    Volume (Year): 97 (2007)
    Issue (Month): 4 (September)
    Pages: 1305-1320

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    Handle: RePEc:aea:aecrev:v:97:y:2007:i:4:p:1305-1320

    Note: DOI: 10.1257/aer.97.4.1305
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    Cited by:
    1. Ordover, Janusz A. & Shaffer, Greg, 2013. "Exclusionary discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 569-586.
    2. Guttel, Ehud & Leshem, Shmuel, 2013. "Bargaining around cost–benefit standards," Journal of Public Economics, Elsevier, vol. 103(C), pages 55-67.
    3. Boone, J. & Müller, W. & Suetens, S., 2009. "Naked Exclusion: Towards a Behavioral Approach to Exclusive Dealing," Discussion Paper 2009-017, Tilburg University, Tilburg Law and Economic Center.
    4. Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
    5. Jean-Michel Glachant & Adrien de Hauteclocque, 2009. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," RSCAS Working Papers 2009/06, European University Institute.
    6. Claudia M. Landeo & Kathryn E. Spier, 2008. "Naked Exclusion: An Experimental Study of Contracts with Externalities," NBER Working Papers 14115, National Bureau of Economic Research, Inc.
    7. Gratz, Linda & Reisinger, Markus, 2013. "On the competition enhancing effects of exclusive dealing contracts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 429-437.
    8. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
    9. Doganoglu, Toker & Wright, Julian, 2010. "Exclusive dealing with network effects," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 145-154, March.
    10. Kitamura, Hiroshi, 2010. "Exclusionary vertical contracts with multiple entrants," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 213-219, May.
    11. DeGraba, Patrick, 2013. "Naked exclusion by a dominant input supplier: Exclusive contracting and loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 516-526.

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