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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)

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 Function: Fisrt version / Primera version, 1999
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Bibliographic 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
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1999-17

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Related research

Keywords: Retailing; vertical restraints; market entry;

References

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  1. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
  2. Joseph Farrell, 1985. "Moral Hazard as an Entry Barrier," Working papers 387, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February.
  4. 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.
  5. Paolo G. Garella & Martin Peitz, 2000. "Intermediation Can Replace Certification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 1-24, 03.
  6. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. 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.
  8. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September.
  9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  10. 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.
  11. Wujin Chu & Woosik Chu, 1994. "Signaling Quality by Selling Through a Reputable Retailer: An Example of Renting the Reputation of Another Agent," Marketing Science, INFORMS, vol. 13(2), pages 177-189.
  12. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers 96008, Stanford University, Department of Economics.
  13. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
  14. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
  15. 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.
  16. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December.
  17. repec:fth:eeccco:119 is not listed on IDEAS
  18. 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.
  19. Schwartz, Marius, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1063-68, December.
  20. 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.
  21. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  22. Heide, Jan B & Dutta, Shantanu & Bergen, Mark, 1998. "Exclusive Dealing and Business Efficiency: Evidence from Industry Practice," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 387-407, October.
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