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Deconstructing Chicago on Exclusive Dealing

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  • Farrell, Joseph

Abstract

While exclusive dealing can be efficient, the Chicago School has also argued that it cannot be anticompetitive, or that it seldom is. That argument takes two forms; both are weak. First, a price-theory argument (“the Chicago Three-Party Argumentâ€) depends crucially on a special model of oligopoly and predicts that we will never see what we see. I show how simply replacing the embedded oligopoly model suggests new efficiency and anticompetitive motives for exclusive dealing; these motives differ markedly from those usually discussed. Second, “the Chicago Vertical Question†is a challenge to theories of anticompetitive vertical practices, including exclusive dealing. While that Question is salutary and helpful, its apparent force dissipates if we pay careful attention to externalities, as others have noted, and to the issue of alternatives versus benchmarks, as I describe below. Overall, economic logic does not support any general presumption that exclusive dealing is efficient.

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Bibliographic Info

Paper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt9wv3k43c.

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Date of creation: 10 Mar 2005
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Handle: RePEc:cdl:compol:qt9wv3k43c

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Cited by:
  1. Chiara Fumagalli & Massimo Motta & Lars Persson, 2006. "Exclusive dealing, entry, and mergers," CSEF Working Papers 153, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Argenton, C., 2008. "Exclusive Quality," Discussion Paper 2008-20, Tilburg University, Center for Economic Research.
  3. Louis Kaplow & Carl Shapiro, 2007. "Antitrust," NBER Working Papers 12867, National Bureau of Economic Research, Inc.
  4. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2007. "On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible," Working Paper Series 718, Research Institute of Industrial Economics.

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