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Abstract

We examine a final product manufacturer's incentives to engage in exclusive dealing with an input supplier when both market sides invest in quality and bargain over their trading terms. Taking into account that the investments' compatibility can be higher under exclusive dealing we find, in contrast to previous literature, that bargaining power distribution plays a crucial role both for investment incentives and for incentives to adopt exclusive dealing. We also find that there exist cases in which although investments are higher under exclusive dealing, the manufacturer chooses non-exclusive dealing. Our welfare analysis indicates that the manufacturer's choice of exclusive dealing in equilibrium is never welfare detrimental.

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Paper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/326.

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Handle: RePEc:ner:carlos:info:hdl:10016/326

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This paper has been announced in the following NEP Reports:

• NEP-ALL-2011-07-13 (All new papers)
• NEP-COM-2011-07-13 (Industrial Competition)

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