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Exclusive dealing, dual foreclosure, and R&D investments

Author

Listed:
  • Bui, Dang-Long
  • Lin, Yan-Shu
  • Liang, Wen-Jung
  • Wang, Kuang-Cheng Andy

Abstract

Motivated by the antitrust case against Intel, this study examines an exclusive dealing (ED) arrangement with dual foreclosure, in which a supplier offers input discounts to a downstream manufacturer to deter entry in both the upstream and downstream markets. Using a spatial competition model with vertical and horizontal differentiation, we analyze the interplay between exclusion and R&D incentives. We find that the contracting supplier uses ED not merely to leverage market power but also to generate R&D synergy by appropriating the full returns from investment across the supply chain. Contrary to traditional theories, we demonstrate that ED can improve social welfare when downstream horizontal differentiation (represented by the transport rate) and R&D efficiency are low. Surprisingly, this improvement occurs even though ED reduces aggregate quality enhancement. These findings suggest that antitrust authorities should adopt a rule-of-reason approach, as the welfare effects of ED depend critically on the intensity of downstream competition and R&D efficiency.

Suggested Citation

  • Bui, Dang-Long & Lin, Yan-Shu & Liang, Wen-Jung & Wang, Kuang-Cheng Andy, 2026. "Exclusive dealing, dual foreclosure, and R&D investments," Economic Modelling, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:ecmode:v:161:y:2026:i:c:s026499932600163x
    DOI: 10.1016/j.econmod.2026.107634
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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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