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Exclusionary vertical contracts with multiple entrants

  • Kitamura, Hiroshi
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    This paper constructs a model of anticompetitive exclusive dealing in the presence of multiple entrants. Unlike the single-entrant model in previous literature, an entrant competes not only with the incumbent to deal with buyers but also with other entrants. The competition among entrants then serves as a commitment such that low wholesale prices are offered to buyers when they deviate from exclusive contracts. We argue that this commitment effect becomes a barrier to exclusive dealing and that the results differ drastically from the predictions of the single-entrant framework.

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    File URL: http://www.sciencedirect.com/science/article/B6V8P-4X2JSSG-1/2/f0bf86fa9824465290024887bbf2c29f
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    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 28 (2010)
    Issue (Month): 3 (May)
    Pages: 213-219

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    Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:213-219
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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    1. Rey, Patrick & Vergé, Thibaud, 2003. "Bilateral Control with Vertical Contracts," IDEI Working Papers 202, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
    3. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
    4. John Simpson & Abraham L. Wickelgren, 2007. "Naked Exclusion, Efficient Breach, and Downstream Competition," American Economic Review, American Economic Association, vol. 97(4), pages 1305-1320, September.
    5. Ashiya, Masahiro, 2000. "Weak entrants are welcome," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 975-984, August.
    6. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
    8. Ilya Segal & Michael D. Whinston, 2000. "Exclusive Contracts and Protection of Investments," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 603-633, Winter.
    9. Joseph Farrell and Nancy T. Gallini., 1986. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8618, University of California at Berkeley.
    10. Julian Wright, 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment," American Economic Review, American Economic Association, vol. 99(3), pages 1070-81, June.
    11. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
    12. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
    13. Ishibashi, Ikuo, 2003. "A note on credible spatial entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 283-289, February.
    14. David Meza & Mariano Selvaggi, 2007. "Exclusive contracts foster relationship-specific investment," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 85-97, 03.
    15. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
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