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Estimating the foreclosure effect of exclusive dealing: Evidence from the entry of specialty beer producers

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  • Chen, Chia-Wen

Abstract

This paper estimates an entry model to study the effect of exclusive dealing between Anheuser Busch and its distributors on rival brewers' entry decisions and consumer surplus. The entry model accounts for post-entry demand conditions and strategic spillover effects. I recover a brewer's fixed costs using a two-step estimator and find spillover effects on brewers' entry decisions. I find that a brewer has higher fixed costs at locations where Anheuser Busch employ exclusive distributors, but the effect is only statistically significant in certain local areas. The estimates also show that a brewer is less likely to enter a location that is farther from its brewery, has lower expected demand, or is smaller in store size. I implement counterfactual experiments to study the effect of banning exclusive contracts between Anheuser Busch and its distributors. The results show that the welfare improvement associated with banning such contracts is very small.

Suggested Citation

  • Chen, Chia-Wen, 2014. "Estimating the foreclosure effect of exclusive dealing: Evidence from the entry of specialty beer producers," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 47-64.
  • Handle: RePEc:eee:indorg:v:37:y:2014:i:c:p:47-64
    DOI: 10.1016/j.ijindorg.2014.07.007
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    Cited by:

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    3. Christopher T. Conlon & Julie Holland Mortimer, 2013. "Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence," NBER Working Papers 19709, National Bureau of Economic Research, Inc.
    4. Li, Jia & Moul, Charles C., 2015. "Who should handle retail? Vertical contracts, customer service, and social welfare in a Chinese mobile phone market," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 29-43.
    5. Chatterjee, Chirantan & Kubo, Kensuke & Pingali, Viswanath, 2015. "The consumer welfare implications of governmental policies and firm strategy in markets for medicines," Journal of Health Economics, Elsevier, vol. 44(C), pages 255-273.
    6. Trey Malone & Jayson L. Lusk, 2016. "Brewing up entrepreneurship: government intervention in beer," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 5(3), pages 325-342, November.
    7. Burgdorf, Jacob, 2019. "Impact of mandated exclusive territories in the US brewing industry: Evidence from scanner level data," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 376-416.

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    More about this item

    Keywords

    Exclusive dealing; Foreclosure; Entry; Beer industry;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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