Exclusive Dealing Contracts by Distributors
AbstractThe existing literature about exclusive dealing contracts has focused on cases where an incumbent manufacturer oÂ¤ers exclusive contracts to deter an entry. In contrast, we consider the case where an incumbent distributor oÂ¤ers exclusive dealing contracts to deter an entry. Exclusive dealing contracts by a distributor are less eÂ¤ective. We will show that the outcome of such contracts is quite diÂ¤erent from the outcomes in the traditional literature. If the number of manufacturers is suÂ¢ ciently high, it is impossible to exclude an eÂ¢ cient entry. Furthermore, if we allow two- part tariÂ¤ contracts, the entrant distributor can enter the market for any number of manufacturers.
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