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Naked Exclusion

Author

Listed:
  • Rasmusen, Eric B
  • Ramseyer, J Mark
  • Wiley, John S, Jr

Abstract

Ordinarily, a monopoly cannot increase its profits by asking customers to sign agreements not to deal with potential competitors. If, however, there are one hundred customers and the minimum efficient scale requires serving fifteen, the monopoly need only lock up eighty-six customers to forestall entry. If each customer believes that the others will sign, each also believes that no rival seller will enter. Hence, an individual customer loses nothing by signaling the exclusionary agreement and will indeed sign. Thus, naked exclusion can be profitable. Copyright 1991 by American Economic Association.

Suggested Citation

  • Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
  • Handle: RePEc:aea:aecrev:v:81:y:1991:i:5:p:1137-45
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    References listed on IDEAS

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    1. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    3. Gene M. Grossman & Henrik Horn, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 767-787.
    4. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, pages 796-821.
    5. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, pages 83-100.
    6. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, pages 224-239.
    7. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, pages 83-100.
    8. Grossman, G.N., 1989. "Promoting New Industrial Activities: A Survey Of Recent Arguments And Evidence," Papers 147, Princeton, Woodrow Wilson School - Public and International Affairs.
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