Exclusive Dealing and Entry, when Buyers Compete
Rasmusen et al. (1991) and Segal and Whinston (2000) show that an incumbent monopolist might exclude entry of a more efficient competitor, by exploiting externalities among buyers. We show that their results hold only when downstream competition among buyers does not exist or is weak enough. Under fierce downstream competition, the incumbent cannot compensate a deviant buyer who buys from the more efficient entrant. Any such buyer will become more competitive and increase their output – thus triggering entry – and profits at the expense of buyers who sign an exclusive deal with the incumbent. Hence, exclusive deals cannot deter efficient entry.
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- B. Douglas Bernheim & Michael D. Whinston, .
96008, Stanford University, Department of Economics.
- B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
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- 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.
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- Ilya R. Segal & Michael D. Whinston, 1996. "Naked Exclusion and Buyer Coordination," Harvard Institute of Economic Research Working Papers 1780, Harvard - Institute of Economic Research.
- Stefanadis, Christodoulos, 1998. "Selective Contracts, Foreclosure, and the Chicago School View," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 429-50, October.
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