Naked market division, price fixing agreements and mergers which result in dominant positions have long been opposed by the courts and the government because of the high likelihood that they will result in a reduction in output and an increase in price. We show that the opposite may be true if the market is characterized by marketing spillovers. When marketing investment is required to educate consumers about the general capabilities or qualities of a product, marketing efforts by one producer will benefit rival producers. A theoretical model of these types of markets shows that marketing spillovers can forestall entry altogether or force incumbent firms to engage in 'limit marketing' that leaves the market underserved from a welfare-maximizing perspective. Under these circumstances, market output and social welfare are potentially raised not only through horizontal agreements among competitors, but also through cost-raising strategies and commitments to predatory behavior by incumbent firms.
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Volume (Year): 11 (2004) Issue (Month): 1 (February) Pages: 69-90 Download reference. The following formats are available: HTML
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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.:
Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991.
"Naked Exclusion,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1137-45, December.
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