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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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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2013/DP0878.pdf
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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. Mokyr, Joel, 1992. "Technological Inertia in Economic History," The Journal of Economic History, Cambridge University Press, vol. 52(02), pages 325-338, June.
  2. 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. Jan Boone & Wieland Müller & Sigrid Suetens, 2011. "Naked exclusion in the lab: The case of sequential contracting," Vienna Economics Papers 1109, University of Vienna, Department of Economics.
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  12. 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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  27. 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.
  28. 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.
  29. Francine Lafontaine & Margaret E. Slade, 2012. "Inter-Firm Contracts
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  30. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, Department of Economics, University of Bristol, UK.
  31. Kitamura, Hiroshi, 2010. "Exclusionary vertical contracts with multiple entrants," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 213-219, May.
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