Exclusive dealing as a barrier to entry? Evidence from automobiles
AbstractExclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market. We ask whether such contracts may act as an entry barrier, and provide an empirical analysis of the European car market. We first estimate a demand model with product and spatial differentiation, and quantify the role of a dense distribution network in explaining the car manufacturers' market shares. We then perform policy counterfactuals to assess the profit incentives and entry-deterring effects of exclusive dealing. We find that there are no individual incentives to maintain exclusive dealing, but there can be a collective incentive by the industry as a whole, even absent efficiencies. Furthermore, a ban on exclusive dealing would shift market shares from the larger European firms to the smaller entrants. More importantly, consumers would gain substantially, mainly because of the increased spatial availability and less so because of intensified price competition. Our findings suggest that the European Commission's recent decision to facilitate exclusive dealing in the car market may not have been warranted.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8762.
Date of creation: Jan 2012
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Other versions of this item:
- Laura NURSKI & Frank VERBOVEN, 2011. "Exclusive dealing as a barrier to entry? Evidence from automobiles," Center for Economic Studies - Discussion papers ces11.37, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-BEC-2012-03-28 (Business Economics)
- NEP-COM-2012-03-28 (Industrial Competition)
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- Muriel Fadairo & Jianyu Yu, 2014.
"Economic Rationales of Exclusive Dealing ; Empirical Evidence from the French Distribution Networks,"
- Muriel Fadairo & Jianyu Yu, 2014. "Economic Rationales of Exclusive Dealing ; Empirical Evidence from the French Distribution Networks," Working Papers 1405, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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