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Exclusive dealing with network effects

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Author Info

  • Doganoglu, Toker
  • Wright, Julian

Abstract

This paper explores the ability of an incumbent to use introductory offers to dominate a market in the face of a more efficient rival when network effects rather than scale economies are present. Both in the case of one-sided and two-sided markets, for introductory offers to be profitable when consumers can multihome, they need to be discriminatory and exclusive. In this setting, exclusivity as opposed to just commitment to purchase is critical -- consumers must commit not to purchase from the rival in the future in order that introductory offers can work. The use of such contracts is anticompetitive and inefficient but does not necessarily result in complete foreclosure.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 2 (March)
Pages: 145-154

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Handle: RePEc:eee:indorg:v:28:y:2010:i:2:p:145-154

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Exclusive deals Networks Foreclosure Two-sided markets;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Jay Pil Choi, 2006. "Tying in Two-Sided Markets with Multi-Homing," Working Papers 06-04, NET Institute, revised Sep 2006.
  2. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  3. Toker Doganoglu & Julian Wright, 2003. "Multihoming and compatibility," Departmental Working Papers wp0314, National University of Singapore, Department of Economics.
  4. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers 96008, Stanford University, Department of Economics.
  5. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers.
  6. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  7. Armstrong, Mark, 1999. "Competition in the Pay-TV Market," Journal of the Japanese and International Economies, Elsevier, vol. 13(4), pages 257-280, December.
  8. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
  9. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  10. John Simpson & Abraham L. Wickelgren, 2007. "Naked Exclusion, Efficient Breach, and Downstream Competition," American Economic Review, American Economic Association, vol. 97(4), pages 1305-1320, September.
  11. BELLEFLAMME, Paul & TOULEMONDE, Eric, . "Negative intra-group externalities in two-sided markets," CORE Discussion Papers RP -2119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  13. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December.
  14. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
  15. Julian Wright, 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment," American Economic Review, American Economic Association, vol. 99(3), pages 1070-81, June.
  16. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
  17. Jullien, Bruno, 2000. "Competing in Network Industries: Divide and Conquer," IDEI Working Papers 112, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2001.
  18. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer, vol. 32(2), pages 353-380, August.
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Citations

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Cited by:
  1. Jay Pil Choi, 2007. "Tying in Two-Sided Markets with Multi-Homing," CESifo Working Paper Series 2073, CESifo Group Munich.
  2. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2007. "Negative intra-group externalities in two-sided markets," CORE Discussion Papers 2007039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. 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.
  4. 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.
  5. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
  6. Evens, Tom, 2010. "Challenging content exclusivity in network industries: the case of digital broadcasting," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 12, International Telecommunications Society (ITS).

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