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- Exclusive Dealing Clauses Facilitate Entry

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Author Info
Martin Peitz (Universidad de Alicante)
Paolo G. Garella (University of Bologna)

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Abstract

Firms willing to enter a market with a new product often face the problem that the market does notknow its quality. Selling through a retailer might avoid excessive entry costs by renting thereputation of an incumbent. The incumbent can apply excusive dealing clauses to his retailer. Weshow that the incumbent enforces the clause only againts low quality entrants and that exlusivedealing clauses lead to a more fragmented industry and improve welfare. However, if theincumbent can undertake e.g. brand differentiating investments at the retailer (which are welfareenhancing under perfect information), the overall effect of exlusive dealing clauses may be welfarereducing under asymmetric information.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1999-17.pdf
File Format: application/pdf
File Function: Fisrt version / Primera version, 1999
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1999-17.

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Length: 35 pages
Date of creation: Oct 1999
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1999-17

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Related research
Keywords: Retailing; vertical restraints; market entry;

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References listed on IDEAS
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  1. Schwartz, Marius, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1063-68, December. [Downloadable!] (restricted)
  2. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Blackwell Publishing, vol. 65(4), pages 655-69, October. [Downloadable!] (restricted)
    Other versions:
  3. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May. [Downloadable!] (restricted)
  4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  5. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn. [Downloadable!] (restricted)
  6. Martin Peitz & Paolo G. Garella, 1999. "- Intermediation Can Replace Certification," Working Papers. Serie AD 1999-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
    Other versions:
  7. 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. [Downloadable!] (restricted)
  8. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December. [Downloadable!] (restricted)
  9. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
    Other versions:
  10. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  11. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  12. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law & Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
  13. Rey, P & Caballero-Sanz, F, 1996. "The Policy Implications of the Economic Analysis of Vertical Restraints," European Economy - Economic Papers 119, Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
  14. Heide, Jan B & Dutta, Shantanu & Bergen, Mark, 1998. "Exclusive Dealing and Business Efficiency: Evidence from Industry Practice," Journal of Law & Economics, University of Chicago Press, vol. 41(2), pages 387-407, October.
  15. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February. [Downloadable!] (restricted)
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  16. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Blackwell Publishing, vol. 36(1), pages 19-34, September. [Downloadable!] (restricted)
  17. Gary Biglaiser, 1993. "Middlemen as Experts," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 212-223, Summer. [Downloadable!] (restricted)
  18. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September. [Downloadable!] (restricted)
  19. Comanor, William S & Frech, H E, III, 1985. "The Competitive Effects of Vertical Agreements?," American Economic Review, American Economic Association, vol. 75(3), pages 539-46, June. [Downloadable!] (restricted)
  20. Mathewson, G Frank & Winter, Ralph A, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1057-62, December. [Downloadable!] (restricted)
  21. Joseph Farrell, 1986. "Moral Hazard as an Entry Barrier," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 440-449, Autumn. [Downloadable!] (restricted)
    Other versions:
  22. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February. [Downloadable!] (restricted)
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