Exclusionary contracts, entry, and communication
AbstractI examine the incentives of firms to communicate entry into an industry where the incumbent writes exclusionary, long-term contracts with consumers. The entrant's information provision affects the optimal contract proposal by the incumbent and leads to communication incentives that are highly non-linear in the size of the innovation. Entry with small and medium-to-large innovations is announced whereas small-to-medium and large innovations are not communicated. It is demonstrated that this equilibrium communication behavior maximizes ex ante total welfare by reducing the anti-competitive impact of excessively exclusive contracts. By contrast, consumers always prefer more communication and the incumbent's equilibrium contract maximizes ex ante consumer surplus.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/697.
Length: 34 pages
Date of creation: 15 May 2007
Date of revision:
Long-term contracts; communication; contractual switching costs; exclusionary conduct;
Find related papers by JEL classification:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-BEC-2007-06-11 (Business Economics)
- NEP-COM-2007-06-11 (Industrial Competition)
- NEP-MIC-2007-06-11 (Microeconomics)
- NEP-TID-2007-06-11 (Technology & Industrial Dynamics)
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