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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. Landeo, Claudia & Spier, Kathryn, 2012. "Exclusive Dealing and Market Foreclosure: Further Experimental Results," Working Papers 2012-10, University of Alberta, Department of Economics.
  2. 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.
  3. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2005. "Exclusive Dealing, Entry and Mergers," CEPR Discussion Papers 4902, C.E.P.R. Discussion Papers.
  4. Mokyr, Joel, 1992. "Technological Inertia in Economic History," The Journal of Economic History, Cambridge University Press, vol. 52(02), pages 325-338, June.
  5. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
  6. Wright, Julian, 2008. "Naked exclusion and the anticompetitive accommodation of entry," Economics Letters, Elsevier, vol. 98(1), pages 107-112, January.
  7. 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.
  8. Landeo, Claudia M. & Spier, Kathryn E., 2007. "Naked Exclusion: An Experimental Study of Contracts with Externalities," MPRA Paper 9143, University Library of Munich, Germany.
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  10. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
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  12. Doganoglu, Toker & Wright, Julian, 2010. "Exclusive dealing with network effects," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 145-154, March.
  13. 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.
  14. 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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  18. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
  19. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  20. Francine Lafontaine & Margaret E. Slade, 2012. "Inter-Firm Contracts
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  21. Emmanuel Petrakis & Chrysovalantou Miliou & Nikos Vettas, 2009. "(In)efficient trading forms in competing vertical chains," Working Papers 0916, University of Crete, Department of Economics.
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  24. William Comanor & Patrick Rey, 2000. "Vertical Restraints and the Market Power of Large Distributors," Review of Industrial Organization, Springer, vol. 17(2), pages 135-153, September.
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  26. Kitamura, Hiroshi, 2010. "Exclusionary vertical contracts with multiple entrants," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 213-219, May.
  27. Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
  28. Fumagalli, Chiara & Motta, Massimo, 2002. "Exclusive Dealing and Entry, when Buyers Compete," CEPR Discussion Papers 3493, C.E.P.R. Discussion Papers.
  29. Gilbert, Richard J., 2011. "Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations," Competition Policy Center, Working Paper Series qt6kv798tf, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  30. 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.
  31. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
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