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Exclusive Dealing, Entry and Mergers

  • Fumagalli, Chiara
  • Motta, Massimo
  • Persson, Lars

We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent’s bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer’s acceptance than in the case where entry can occur only by installing new capacity. Third, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas de novo entry would be socially optimal, and (ii) it may deter entry altogether. Finally, we show that when exclusive deals include a commitment on future prices they will increase welfare.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4902.

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Date of creation: Feb 2005
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Handle: RePEc:cpr:ceprdp:4902
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  1. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  2. 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.
  3. Bernheim, B.D., 1992. "Exclusive Dealing," Harvard Institute of Economic Research Working Papers 1622, Harvard - Institute of Economic Research.
  4. Persson, Lars, 1999. "Predation and Mergers: Is Merger Law Counterproductive?," Working Paper Series 516, Research Institute of Industrial Economics.
  5. Farrell, Joseph, 2005. "Deconstructing Chicago on Exclusive Dealing," Competition Policy Center, Working Paper Series qt9wv3k43c, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  6. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-42, April.
  7. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  8. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  9. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  10. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
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