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Exclusive contracts and demand foreclosure

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  • David Spector

Abstract

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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Suggested Citation

  • David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
    • Handle: RePEc:bla:randje:v:42:y:2011:i:4:p:619-638
    DOI: j.1756-2171.2011.00147.x
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    File URL: http://hdl.handle.net/10.1111/j.1756-2171.2011.00147.x
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    Cited by:

    1. Jay Pil Choi & Christodoulos Stefanadis, 2018. "Sequential innovation, naked exclusion, and upfront lump-sum payments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(4), pages 891-915, June.
    2. Cédric Argenton, 2010. "Exclusive Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 690-716, September.
    3. Bijlsma, M. & Boone, J. & Zwart, Gijsbert, 2009. "Selective Contracting and Foreclosure in Health Care Markets," Other publications TiSEM fee69eb7-1661-4ec2-8aae-f, Tilburg University, School of Economics and Management.
    4. Zhijun Chen & Greg Shaffer, 2016. "Are Market-Share Contracts a Poor Man’s Exclusive Dealing?," Monash Economics Working Papers 44-16, Monash University, Department of Economics.
    5. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    6. Giacomo Calzolari & Vincenzo Denicolò, 2015. "Exclusive Contracts and Market Dominance," American Economic Review, American Economic Association, vol. 105(11), pages 3321-3351, November.
    7. Schutz, Nicolas, 2024. "Competition with exclusive contracts in vertically related markets: An equilibrium non-existence result," International Journal of Industrial Organization, Elsevier, vol. 96(C).
    8. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Cabral, Luis, 2014. "Staggered Contracts, Market Power, and Welfare," CEPR Discussion Papers 10095, C.E.P.R. Discussion Papers.
    10. Enrique Ide & Juan-Pablo Montero & Nicolás Figueroa, 2016. "Discounts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 106(7), pages 1849-1877, July.
    11. Jan Boone & Wieland Müller & Sigrid Suetens, 2014. "Naked Exclusion in the Lab: The Case of Sequential Contracting," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 137-166, March.
    12. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    13. Dawen Meng & Guoqiang Tian, 2021. "The competitive and welfare effects of long-term contracts with network externalities and bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 337-375, July.
    14. David E. Mills, 2017. "Buyer‐Induced Exclusive Dealing," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 66-81, July.
    15. Álvarez-SanJaime, Óscar & Cantos-Sánchez, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J., 2013. "Vertical integration and exclusivities in maritime freight transport," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 50-61.
    16. Guy Meunier, 2011. "Imperfect Competition and Long-term Contracts in Electricity Markets: Some Lessons from Theoretical Models," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 6, Edward Elgar Publishing.
    17. Yaron Yehezkel, 2008. "Retailers' choice of product variety and exclusive dealing under asymmetric information," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 115-143, March.
    18. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
    19. Calzolari, Giacomo & Denicolo, Vincenzo, 2020. "Exploiting rivals' strengths," CEPR Discussion Papers 15520, C.E.P.R. Discussion Papers.
    20. Gavin, Sebnem & Ross, Thomas W., 2018. "Long-term contracts as barriers to entry with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 514-537.
    21. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    22. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    23. Klein, Joachim & Zenger, Hans, 2009. "Predatory Exclusive Dealing," Discussion Papers in Economics 10626, University of Munich, Department of Economics.
    24. Lluis Bru & Daniel Cardona, 2016. "Strategic Sourcing in Procurement," DEA Working Papers 82, Universitat de les Illes Balears, Departament d'Economía Aplicada.

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