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Exclusive dealing with costly rent extraction

Author

Listed:
  • Calzolari, Giacomo
  • Denicolo, Vincenzo
  • Zanchettin, Piercarlo

Abstract

We analyze the impact of exclusive contracts on the intensity of competition among firms that supply substitute products. Exclusive contracts would be neutral if firms priced at marginal cost and extracted buyers' rent by means of non distortionary fixed fees. We focus instead on the case in which rent extraction is costly, and hence firms distort marginal prices upwards. We show that in this case exclusive contracts are anti-competitive when the dominant firm enjoys a large enough competitive advantage over its rivals, and are pro-competitive, or neutral, when the competitive advantage is small. These effects appear as soon as marginal prices are distorted upwards, irrespective of which specific factors impede perfect rent extraction.

Suggested Citation

  • Calzolari, Giacomo & Denicolo, Vincenzo & Zanchettin, Piercarlo, 2016. "Exclusive dealing with costly rent extraction," CEPR Discussion Papers 11291, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11291
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    References listed on IDEAS

    as
    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    3. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    4. Amir, Rabah & Jin, Jim Y., 2001. "Cournot and Bertrand equilibria compared: substitutability, complementarity and concavity," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 303-317, March.
    5. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    6. I. P. L. Png & Hao Wang, 2010. "Buyer Uncertainty and Two-Part Pricing: Theory and Applications," Management Science, INFORMS, vol. 56(2), pages 334-342, February.
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    Cited by:

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    3. Stefano Bolatto & Marco Grazzi & Chiara Tomasi, 2018. "Export Modes and Adjustments to Exchange Rate Movements," DEM Working Papers 2018/02, Department of Economics and Management.

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    More about this item

    Keywords

    Exclusive dealing; Buyer's rent; Rent extraction; Antitrust; Dominant firm;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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