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How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?

Author

Listed:
  • Hiroshi Kitamura
  • Noriaki Matsushima
  • Misato Sato

Abstract

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

Suggested Citation

  • Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2013. "How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?," ISER Discussion Paper 0878r, Institute of Social and Economic Research, Osaka University, revised Sep 2015.
  • Handle: RePEc:dpr:wpaper:0878r
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    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2013/DP0878R.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jullien, Bruno & Rey, Patrick & Saavedra, Claudia, 2014. "The Economics of Margin Squeeze," CEPR Discussion Papers 9905, C.E.P.R. Discussion Papers.

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