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Long-term contracts as barriers to entry with differentiated products

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  • Gavin, Sebnem
  • Ross, Thomas W.

Abstract

We study long-term contracts as barriers to entry, departing from earlier literature in three important ways. First, the incumbent firm is allowed a period of monopoly prior to the entrant’s arrival, a period that opens up greater possibilities for mutually attractive long-term contracts. Second, our model allows for product differentiation – a generalization that is shown to have significant implications for the design and profitability of long-term contacts. Finally, we consider long-term contracts that are not exclusive and show how such contracts can nevertheless contribute to the profitable partial foreclosure of entrants.

Suggested Citation

  • Gavin, Sebnem & Ross, Thomas W., 2018. "Long-term contracts as barriers to entry with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 514-537.
    • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:514-537
    DOI: 10.1016/j.ijindorg.2018.05.004
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    References listed on IDEAS

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    Cited by:

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    3. Dawen Meng & Guoqiang Tian, 2021. "The competitive and welfare effects of long-term contracts with network externalities and bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 337-375, July.

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    More about this item

    Keywords

    Long-term contracts; Barriers to entry; Differentiated products;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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