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

Suggested Citation

  • Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2013. "How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?," ISER Discussion Paper 0878r, Institute of Social and Economic Research, Osaka University, revised Sep 2015.
    • Handle: RePEc:dpr:wpaper:0878r
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    Cited by:

    1. Kitamura, Hiroshi & Matsushima, Noriaki & Sato, Misato, 2017. "Exclusive contracts and bargaining power," Economics Letters, Elsevier, vol. 151(C), pages 1-3.
    2. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2018. "Naked exclusion under exclusive-offer competition," ISER Discussion Paper 1021, Institute of Social and Economic Research, Osaka University.
    3. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Defending Home against Giants: Exclusive Dealing as a Survival Strategy for Local Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 441-463, June.
    4. Rey, Patrick & Jullien, Bruno & Saavedra, Claudia, 2014. "The Economics of Margin Squeeze," CEPR Discussion Papers 9905, C.E.P.R. Discussion Papers.
    5. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2021. "Defending home against giants: Exclusive dealing as a survival strategy for local firms," ISER Discussion Paper 1122, Institute of Social and Economic Research, Osaka University.

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    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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