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An experimental study of exclusive contracts

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  • Smith, Angela M.

Abstract

This paper reports results from a laboratory experiment based on exclusive contracts that may theoretically lead to inefficient "naked exclusion" of a potential rival. The data indicate that changes in the number of buyers in the market have no significant effect on exclusion rates but the likelihood of inefficient exclusion is decreased both when a larger fraction of signed buyers are needed to deter a rival's entry and when buyers engage in non-binding communication. These results have antitrust implications both in terms of helping to identify "at-risk" market characteristics and suggesting potential competition-enhancing strategies. A sub-game of the experiment where buyers make signing decisions can be illustrated as a coordination game with the unique feature that payoffs are affected by a separate but interested party (the incumbent seller). I find that the height of the potential function and relevant basin of attraction, especially when combined with quantal response estimation, have larger predictive power in this sub-game than several other equilibrium selection criteria.

Suggested Citation

  • Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:4-13
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kitamura Hiroshi, 2011. "Exclusive Contracts under Financial Constraints," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-31, September.
    2. Hinloopen, Jeroen & Müller, Wieland & Normann, Hans-Theo, 2014. "Output commitment through product bundling: Experimental evidence," European Economic Review, Elsevier, vol. 65(C), pages 164-180.
    3. 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.
    4. Moellers, Claudia & Normann, Hans-Theo & Snyder, Christopher M., 2017. "Communication in vertical markets: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 214-258.
    5. Hiroshi Kitamura & Misato Sato & Koki Arai, 2014. "Exclusive contracts when the incumbent can establish a direct retailer," Journal of Economics, Springer, vol. 112(1), pages 47-60, May.
    6. Möllers, Claudia & Normann, Hans-Theo & Snyder, Christopher M., 2016. "Communication in vertical markets: Experimental evidence," DICE Discussion Papers 226, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. repec:dpr:wpaper:0878 is not listed on IDEAS
    8. John Asker, 2016. "Diagnosing Foreclosure due to Exclusive Dealing," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 375-410, September.
    9. Normann, Hans-Theo & Möllers, Claudia & Snyder, Christopher M., 2015. "Communication in Vertically Related Markets: Experimental Evidence," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112842, Verein für Socialpolitik / German Economic Association.
    10. Claudia Möllers & Hans-Theo Normann & Christopher M. Snyder, 2016. "Communication in Vertical Markets: Experimental Evidence," NBER Working Papers 22219, National Bureau of Economic Research, Inc.

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