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Exclusive contracts and demand foreclosure

  • David Spector

A firm may decide to have some of its customers sign exclusive contracts in order to deprive a rival of the minimum viable size, exclude it from the market, and enjoy increased market power. If contracts are required to be simple enough, this strategy may induce inefficient exclusion even if the excluded firm is present at the contracting stage. Exclusive contracts may thus cause inefficient eviction, not only entry-deterrence, even though the former is less likely than the latter. However, complex enough contracts, if feasible, would allow agents to reach a Pareto-optimum, without inefficient exclusion.

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File URL: http://hdl.handle.net/10.1111/j.1756-2171.2011.00147.x
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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 42 (2011)
Issue (Month): 4 (December)
Pages: 619-638

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Handle: RePEc:bla:randje:v:42:y:2011:i:4:p:619-638
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