This paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts. We use the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000) where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent. When discrimination is impossible, the game resembles a stag-hunt (coordination) game in which the buyers' payoffs are endogenously chosen by the incumbent seller. Exclusion occurs when the buyers fail to coordinate on their preferred equilibrium. Two-way non-binding pre-play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller. When discrimination and communication are possible, the exclusion rate rises. Divide-and-conquer strategies are observed more frequently when buyers can communicate with each other. Exclusion rates are significantly higher when the buyers' payoffs are endogenously chosen rather than exogenously given. Finally, secret offers are shown to decrease the incumbent's power to profitably exclude.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14115.
Length: Date of creation: Jun 2008 Date of revision: Handle: RePEc:nbr:nberwo:14115
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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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)
B. Douglas Bernheim & Michael D. Whinston, 1998.
"Exclusive Dealing,"
Journal of Political Economy,
University of Chicago Press, vol. 106(1), pages 64-103, February.
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B. Douglas Bernheim & Michael D. Whinston, 1996.
"Exclusive Dealing,"
NBER Working Papers
5666, National Bureau of Economic Research, Inc.
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