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How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?

  • Hiroshi Kitamura
  • Noriaki Matsushima
  • Misato Sato

This study constructs a model for examining anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform the input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when socially efficient entry is allowed. Hence, the inefficient incumbent can deter socially efficient entry via exclusive supply contracts, even in the framework of the Chicago School argument where a single seller, a single buyer, and a single entrant exist.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0878.

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Date of creation: Aug 2013
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Handle: RePEc:dpr:wpaper:0878
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  1. Patrick Rey & Thibaud Vergé, 2003. "Bilateral Control with Vertical Contracts," Industrial Organization 0309005, EconWPA.
  2. Argenton, C., 2008. "Exclusive Quality," Discussion Paper 2008-007, Tilburg University, Tilburg Law and Economic Center.
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  7. Claudia M. Landeo & Kathryn E. Spier, 2012. "Exclusive Dealing and Market Foreclosure: Further Experimental Results," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 150-170, March.
  8. Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
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  10. 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, 03.
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  14. Doganoglu, Toker & Wright, Julian, 2010. "Exclusive dealing with network effects," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 145-154, March.
  15. Landeo, Claudia M. & Spier, Kathryn E., 2007. "Naked Exclusion: An Experimental Study of Contracts with Externalities," MPRA Paper 9143, University Library of Munich, Germany.
  16. Patrick REY & Thibaud VERGE, 2009. "Resale Price Maintenance and Interlocking Relationships," Working Papers 2009-11, Centre de Recherche en Economie et Statistique.
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  20. Cédric Argenton & Bert Willems, 2012. "Exclusivity Contracts, Insurance and Financial Market Foreclosure," Journal of Industrial Economics, Wiley Blackwell, vol. 60(4), pages 609-630, December.
  21. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
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  28. Oki Ryoko & Yanagawa Noriyuki, 2011. "Exclusive Dealing and the Market Power of Buyers," Asian Journal of Law and Economics, De Gruyter, vol. 2(1), pages 1-25, April.
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  30. Emmanuel Petrakis & Chrysovalantou Miliou & Nikos Vettas, 2009. "(In)efficient trading forms in competing vertical chains," Working Papers 0916, University of Crete, Department of Economics.
  31. Layne-Farrar, Anne & Lerner, Josh, 2011. "To join or not to join: Examining patent pool participation and rent sharing rules," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 294-303, March.
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