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Exclusive Contracts and Protection of Investments

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Author Info
Ilya Segal
Michael D. Whinston
Abstract

We consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship. Contrary to some informal claims in the literature, we find that exclusivity has no effect when all investments are fully specific to the relationship (i.e., are purely "internal"). Exclusivity does matter when investments affect the value of the buyer's trade with other sellers (i.e., have "external" effects). We examine the effects of exclusivity on investments and aggregate welfare, and the private incentives of the buyer-seller coalition to use it.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 31 (2000)
Issue (Month): 4 (Winter)
Pages: 603-633
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Handle: RePEc:rje:randje:v:31:y:2000:i:winter:p:603-633

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  1. John Asker, 2004. "Diagnosing Foreclosure Due to Exclusive Dealing," Working Papers 04-36, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  2. João VIEIRA-MONTEZ, 2004. "Downstream Concentration and Producer's Capacity Choice," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.13, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  3. Rachel E. Kranton & Deborah F. Minehart, 2002. "Vertical Foreclosure and Specific Investments," Economics Working Papers 0013, Institute for Advanced Study, School of Social Science. [Downloadable!]
  4. Chrysovalantou Milliou, 2004. "Exclusive Dealing And Compatibility Of Investments," Economics Working Papers we044919, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  5. repec:att:wimass:192043 is not listed on IDEAS
  6. Boone, J. & Müller, W. & Suetens, S., 2009. "Naked Exclusion: Towards a Behavioral Approach to Exclusive Dealing," Discussion Paper 2009-30, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  7. Baldenius, Tim & Reichelstein, Stefan J., 2004. "External and Internal Pricing in Multidivisional Firms," Research Papers 1825r, Stanford University, Graduate School of Business. [Downloadable!]
  8. Jay Pil Choi, 2003. "Pools and Cross-Licensing in the Shadow of Patent Litigation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Vasconcelos, Luis, 2006. "Contractual signalling, relationship-specific investment and exclusive agreements," FEUNL Working Paper Series wp495, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
  10. Fumagalli, Chiara & Motta, Massimo & Rønde, Thomas, 2009. "Exclusive dealing: the interaction between foreclosure and investment promotion," CEPR Discussion Papers 7240, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Andreas Roider, 2006. "Fisher Body revisited: Supply contracts and vertical integration," European Journal of Law and Economics, Springer, vol. 22(2), pages 181-196, September. [Downloadable!] (restricted)
  12. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, Department of Economics, University of Bristol, UK. [Downloadable!]
  13. Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society. [Downloadable!]
    Other versions:
  14. Xinyu Hua, 2004. "Strategic Ex-ante Contracts: Rent-Extraction and Opportunity Costs," Econometric Society 2004 North American Summer Meetings 564, Econometric Society. [Downloadable!]
  15. David de Meza & Marianno Selvaggi, 2003. "Please Hold me Up: Why Firms Grant Exclusive Dealing Contracts," The Centre for Market and Public Organisation 03/066, Department of Economics, University of Bristol, UK. [Downloadable!]
  16. Selvaggi, Marianao & Vasconcelos, Luis, 2006. "Star Wars: Exclusive Superstars and Collusive Outcomes," FEUNL Working Paper Series wp496, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
  17. repec:bep:thetop:v:7:y:2007:i:1:p:1220-1220 is not listed on IDEAS
    Other versions:
  18. Roman Inderst & Christian Wey, 2000. "Market Structure, Bargaining, and Technology Choice," CIG Working Papers FS IV 00-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  19. Joshua S Gans, 2004. "Vertical Contracting When Competition for Orders Precedes Procurement," Econometric Society 2004 Australasian Meetings 123, Econometric Society. [Downloadable!]
  20. David Spector, 2007. "Exclusive contracts and demand foreclosure," PSE Working Papers 2007-07, PSE (Ecole normale supérieure). [Downloadable!]
  21. Stennek, Johan, 2007. "Exclusive Quality - Why Exclusive Distribution May Benefit the TV Viewers," CEPR Discussion Papers 6072, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Bharat N. Anand & Alexander Galetovic, 2002. "Does Competition Kill Relationships? Inside Investment Banking," Documentos de Trabajo 119, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  23. Matthew Ellman, 2006. "The Optimal Length of Contracts with Application to Outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  24. Feess, Eberhard & Gerfin, Michael & Muehlheusser, Gerd, 2008. "Contracts as Rent Seeking Devices: Evidence from German Soccer," IZA Discussion Papers 3834, Institute for the Study of Labor (IZA). [Downloadable!]
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