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Exclusive contracts and market dominance

Author

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  • Calzolari, Giacomo
  • Denicolò, Vincenzo

Abstract

We develop a theory of exclusive dealing that rehabilitates pre-Chicago-school analyses. Our theory rests on two realistic assumptions: that firms are imperfectly informed about demand, and that a dominant firm has a competitive advantage over its rivals. Under those assumptions, exclusive contracts tend to be pro-competitive when the dominant firm's competitive advantage is small, but are anti-competitive when it is more pronounced. In this latter case, the dominant firm uses exclusivity clauses as a means to increase its market share and profit, without necessarily driving its rivals out of the market, or impeding their entry. We discuss the implications of these results for competition policy.

Suggested Citation

  • Calzolari, Giacomo & Denicolò, Vincenzo, 2013. "Exclusive contracts and market dominance," CEPR Discussion Papers 9545, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9545
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
    3. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    4. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    5. Julian Wright, 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment," American Economic Review, American Economic Association, vol. 99(3), pages 1070-1081, June.
    6. 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.
    7. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    8. 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.
    9. David Martimort & Lars Stole, 2009. "Market participation in delegated and intrinsic common-agency games," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 78-102.
    10. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    11. Kathryn E. Spier & Michael D. Whinston, 1995. "On the Efficiency of Privately Stipulated Damages for Breach of Contract: Entry Barriers, Reliance, and Renegotiation," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 180-202, Summer.
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    Cited by:

    1. Xiao, Junji & Ju, Heng, 2016. "The determinants of dealership structure: Empirical analysis of the Chinese auto market," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 961-981.

    More about this item

    Keywords

    Dominant firm; Exclusive dealing; Non-linear pricing;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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