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Exclusive dealing, entry, and mergers

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Abstract

This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 225.

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Date of creation: 01 May 2009
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Publication status: Published in Journal of Industrial Economics,Volume 57, Issue 4, December 2009, pp. 785–811
Handle: RePEc:sef:csefwp:225

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  1. B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
  2. Persson, Lars, 2004. "Predation and mergers: Is merger law counterproductive?," European Economic Review, Elsevier, vol. 48(2), pages 239-258, April.
  3. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-42, April.
  4. Joseph Farrell, 2005. "Deconstructing Chicago on Exclusive Dealing," Industrial Organization 0504017, EconWPA.
  5. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  6. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
  7. 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.
  8. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  9. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  10. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
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Citations

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Cited by:
  1. Ryoko Oki & Noriyuki Yanagawa, 2011. "Exclusive Dealing Contracts by Distributors," CARF F-Series CARF-F-243, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Muriel Fadairo & Jianyu Yu, 2014. "Economic Rationales of Exclusive Dealing ; Empirical Evidence from the French Distribution Networks," Working Papers 1405, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Ryoko Oki & Noriyuki Yanagawa, 2011. "Exclusive Dealing Contracts by Distributors," CIRJE F-Series CIRJE-F-789, CIRJE, Faculty of Economics, University of Tokyo.
  4. Ryoko Oki & Noriyuki Yanagawa, 2010. "Exclusive Dealing and the Market Power of Buyers," CIRJE F-Series CIRJE-F-748, CIRJE, Faculty of Economics, University of Tokyo.
  5. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2013. "How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?," ISER Discussion Paper 0878, Institute of Social and Economic Research, Osaka University.
  6. Schutz, Nicolas, 2013. "Competition with Exclusive Contracts in Vertically Related Markets: An Equilibrium Non-Existence Result," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 439, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Ryoko Oki & Noriyuki Yanagawa, 2009. "Exclusive Dealing and Large Distributors," CARF F-Series CARF-F-152, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  8. Zavelberg, Yvonne & Wieck, Christine & Heckelei, Thomas, 2013. "Entry deterring effects of contractual relations in the dairy processing sector," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156225, German Association of Agricultural Economists (GEWISOLA).
  9. Yongmin Chen & David E. M. Sappington, 2011. "Exclusive Contracts, Innovation, and Welfare," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 194-220, May.
  10. Norbäck, Pehr-Johan & Persson, Lars & Tag, Joacim, 2012. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CEPR Discussion Papers 8992, C.E.P.R. Discussion Papers.
  11. Ryoko Oki & Noriyuki Yanagawa, 2009. "Exclusive Dealing and Large Distributors," CIRJE F-Series CIRJE-F-626, CIRJE, Faculty of Economics, University of Tokyo.
  12. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
  13. Christopher T. Conlon & Julie Holland Mortimer, 2013. "Efficiency and Foreclosure Effects of All-Units Discounts: Empirical Evidence," NBER Working Papers 19709, National Bureau of Economic Research, Inc.
  14. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2007. "On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible," Working Paper Series 718, Research Institute of Industrial Economics.
  15. Marc Blatter & Silvio Sticher, 2013. "Exclusivity Clauses: Enhancing Competition, Raising Prices," Diskussionsschriften dp1312, Universitaet Bern, Departement Volkswirtschaft.
  16. Ryoko Oki & Noriyuki Yanagawa, 2010. "Exclusive Dealing and the Market Power of Buyers," CARF F-Series CARF-F-222, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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