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Exclusive Dealing And Compatibility Of Investments

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  • Chrysovalantou Milliou

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Abstract

We examine a final product manufacturer's incentives to engage in exclusive dealing with an input supplier when both market sides invest in quality and bargain over their trading terms. Taking into account that the investments' compatibility can be higher under exclusive dealing we find, in contrast to previous literature, that bargaining power distribution plays a crucial role both for investment incentives and for incentives to adopt exclusive dealing. We also find that there exist cases in which although investments are higher under exclusive dealing, the manufacturer chooses non-exclusive dealing. Our welfare analysis indicates that the manufacturer's choice of exclusive dealing in equilibrium is never welfare detrimental.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we044919.

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Date of creation: Oct 2004
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Handle: RePEc:cte:werepe:we044919

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  14. David de Meza & Marianno Selvaggi, 2003. "Please Hold me Up: Why Firms Grant Exclusive Dealing Contracts," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 03/066, Department of Economics, University of Bristol, UK.
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