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On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible

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Author Info

  • Fumagalli, Chiara

    (Università Bocconi)

  • Motta, Massimo

    (European University Institute)

  • Persson, Lars

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

We extend the literature on exclusive dealing, which assumes that entry can occur only by installing new capacity, by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance. Third, exclusive dealing, despite allowing the more efficient technology to find its way into the industry, reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal, (ii) it leads to a sub-optimal contractual price when the exclusive dealing include a price commitment, (iii) it may deter entry altogether.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 718.

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Length: 25 pages
Date of creation: 20 Sep 2007
Date of revision:
Handle: RePEc:hhs:iuiwop:0718

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Related research

Keywords: Technology Transfer; Inefficient Entry; Antitrust; Authority's Behavior;

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References

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  1. Damien J. Neven & Lars-Hendrik Röller, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," CIG Working Papers FS IV 00-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  3. B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
  4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
  5. Persson, Lars, 1999. "Predation and Mergers: Is Merger Law Counterproductive?," Working Paper Series 516, Research Institute of Industrial Economics.
  6. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-42, April.
  7. Farrell, Joseph, 2005. "Deconstructing Chicago on Exclusive Dealing," Competition Policy Center, Working Paper Series qt9wv3k43c, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  8. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers.
  9. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  10. 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.
  11. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2005. "Exclusive Dealing, Entry and Mergers," CEPR Discussion Papers 4902, C.E.P.R. Discussion Papers.
  12. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  13. Fridolfsson, Sven-Olof, 2007. "A Consumer Surplus Defense in Merger Control," Working Paper Series 686, Research Institute of Industrial Economics.
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