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Exclusivity, competition and the irrelevance of internal investment

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Author Info

  • de Fontenay, Catherine C.
  • Gans, Joshua S.
  • Groves, Vivienne

Abstract

This paper considers the effect of exclusive contracts on investment decisions in a market with two upstream and two downstream firms. Segal and Whinston's (2000) irrelevance result is generalised and it is shown that exclusive contracts have no effect on the equilibrium level of internal investment for the contracted parties when competition exists in both the upstream and downstream markets. Furthermore, by considering a more competitive environment we are able to demonstrate that strongly internal investment by rival upstream-downstream bargaining pairs is similarly unaffected by the presence of exclusive contracts.

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Bibliographic Info

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

Volume (Year): 28 (2010)
Issue (Month): 4 (July)
Pages: 336-340

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Handle: RePEc:eee:indorg:v:28:y:2010:i:4:p:336-340

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

Related research

Keywords: Exclusive contracts Irrelevance result Shapley value Upstream competition Bargaining;

References

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  1. David Meza & Mariano Selvaggi, 2007. "Exclusive contracts foster relationship-specific investment," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 85-97, 03.
  2. Ilya Segal & Michael D. Whinston, 2000. "Exclusive Contracts and Protection of Investments," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 603-633, Winter.
  3. Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society.
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Cited by:
  1. Rudy Douven & Victoria Shestalova & Rein Halbersma & Katalin Katona, 2011. "Vertical integration and exclusive vertical restraints in health-care markets," CPB Discussion Paper 172, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Eichberger, J├╝rgen & Mueller-Langer, Frank, 2012. "On the Welfare Effects of Exclusive Distribution Arrangements," MPRA Paper 39691, University Library of Munich, Germany.

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