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Exclusionary contracts, entry, and communication

Author

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  • Gerlach, Heiko

    (University of Auckland)

Abstract

I 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.

Suggested Citation

  • Gerlach, Heiko, 2007. "Exclusionary contracts, entry, and communication," IESE Research Papers D/697, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0697
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    File URL: http://www.iese.edu/research/pdfs/DI-0697-E.pdf
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    More about this item

    Keywords

    Long-term contracts; communication; contractual switching costs; exclusionary conduct;
    All these keywords.

    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

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