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Exclusive Quality

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Author Info
Argenton, C. (Tilburg University, Center for Economic Research)
Abstract

In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent?s inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent?s monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-20.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200820

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Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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  1. Ilya R. Segal & Michael D. Whinston, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March. [Downloadable!] (restricted)
  2. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  4. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 44(3), pages 345-53, September. [Downloadable!] (restricted)
    Other versions:
  7. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  8. Ching-To Albert Ma, 1997. "Option Contracts and Vertical Foreclosure," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(4), pages 725-753, December. [Downloadable!] (restricted)
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  9. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February. [Downloadable!] (restricted)
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  10. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January. [Downloadable!] (restricted)
  11. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  12. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  13. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter. [Downloadable!] (restricted)
  14. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  15. Joseph Farrell, 2005. "Deconstructing Chicago on Exclusive Dealing," Industrial Organization 0504017, EconWPA. [Downloadable!]
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