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Exploiting Rivals' Strengths

Author

Listed:
  • Giacomo Calzolari
  • Vincenzo Denicolò

Abstract

We analyze oligopolistic competition in which firms use contracts contingent on what buyers purchase from their rivals. We present a new mechanism through which a dominant firm, by using these contracts, can gain more from exploiting its rivals than from foreclosing them. This exploitation is achieved by requiring buyers to source at least a certain share of their total requirements from the dominant firm, though less than 100 percent. By optimally designing these contracts, the dominant firm can earn as much as it would if it were to acquire the rivals' specific technological and marketing capabilities at no cost.

Suggested Citation

  • Giacomo Calzolari & Vincenzo Denicolò, 2026. "Exploiting Rivals' Strengths," American Economic Journal: Microeconomics, American Economic Association, vol. 18(3), pages 77-104, August.
    • Handle: RePEc:aea:aejmic:v:18:y:2026:i:3:p:77-104
    DOI: 10.1257/mic.20240219
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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