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How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?

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  • Hiroshi Kitamura
  • Noriaki Matsushima
  • Misato Sato

Abstract

This study constructs a model for examining anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform the input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when socially efficient entry is allowed. Hence, the inefficient incumbent can deter socially efficient entry via exclusive supply contracts, even in the framework of the Chicago School argument where a single seller, a single buyer, and a single entrant exist.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0878.

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Date of creation: Aug 2013
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Handle: RePEc:dpr:wpaper:0878

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