Can Naked Exclusion Be Procompetitive?
AbstractAntitrust scholars have argued that exclusive contracts have anticompetitive, or at best neutral effects, if no efficiencies are generated. In contrast, this paper shows that exclusive contracts can have procompetitive effects, provided buyers are imperfect downstream competitors and contract breach is feasible. In that case an efficient entrant is not necessarily foreclosed through exclusive contracting but induces buyers to breach. Because breaching buyers have to pay expectation damages to the incumbent, the downstream profits they obtain when breaching must be large enough. Therefore, the entrant needs to set a lower wholesale price than absent exclusive contracting, leading to lower final consumer prices and higher welfare.
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Bibliographic InfoPaper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 12733.
Date of creation: Feb 2012
Date of revision:
Exclusive Contracting; Naked Exclusion; Contract Breach; Antitrust Policy;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-BEC-2012-02-20 (Business Economics)
- NEP-COM-2012-02-20 (Industrial Competition)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yong, Jong-Say, 1999. "Exclusionary Vertical Contracts and Product Market Competition," The Journal of Business, University of Chicago Press, vol. 72(3), pages 385-406, July.
- Fumagalli, Chiara & Motta, Massimo, 2002.
"Exclusive Dealing and Entry, when Buyers Compete,"
CEPR Discussion Papers, C.E.P.R. Discussion Papers
3493, C.E.P.R. Discussion Papers.
- Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 785-795, June.
- Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 36(3), pages 257-65, March.
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