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Entry deterrrence via renegotiation-proof non-exclusive contracts

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  • Aggey Semenov

    ()
    (Department of Economics, University of Ottawa, Ottawa, ON)

  • Julian Wright

    ()
    (Department of Economics, National University of Singapour)

Abstract

We establish the entry-deterring role of vertical contracts in a setting that does not rely on asymmetric information, the exclusivity of the incumbent’s contracts, limits on distribution channels, or restrictions on the ability to renegotiate contracts in case of entry. The optimal contract we describe is a three-part quantity discounting contract that involves the payment of an allowance to the downstream firm and a marginal wholesale price below the incumbent’s marginal cost for sufficiently large quantities

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Bibliographic Info

Paper provided by University of Ottawa, Department of Economics in its series Working Papers with number 1105E.

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Length: 25 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ott:wpaper:1105e

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Keywords: entry; vertical contracts; exclusivity; renegotiation;

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  1. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
  2. Patrick Rey & Joseph Stiglitz, 1995. "The Role of Exclusive Territories in Producers' Competition," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 431-451, Autumn.
  3. Stefanadis, Christodoulos, 1998. "Selective Contracts, Foreclosure, and the Chicago School View," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 429-50, October.
  4. Oystein Foros & Hans Jarle Kind, 2006. "Do Slotting Allowances Harm Retail Competition?," CESifo Working Paper Series 1800, CESifo Group Munich.
  5. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
  6. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
  7. Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991. "Competing vertical structures : precommitment and renegotiation," CEPREMAP Working Papers (Couverture Orange) 9125, CEPREMAP.
  8. Federico Etro, 2010. "Endogenous Market Structures and Contract Theory," Working Papers 181, University of Milano-Bicocca, Department of Economics, revised Mar 2010.
  9. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  10. Schwartz, Marius & Thompson, Earl A, 1986. "Divisionalization and Entry Deterrence," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 307-21, May.
  11. Federico Etro, 2012. "Endogenous Market Structures and Welfare," Working Papers 2012_12, Department of Economics, University of Venice "Ca' Foscari".
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