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Exclusive Contracts with Complementary Inputs

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Listed:
  • Hiroshi Kitamura
  • Noriaki Matsushima
  • Misato Sato

Abstract

This study constructs a model of anticompetitive exclusive contracts in the presence of complementary inputs. A downstream firm transforms multiple complementary inputs into final products. When complementary input suppliers have market power, upstream competition within a given input market benefits not only the downstream firm (by lowering the input price) but also complementary input suppliers (by raising complementary input prices). The downstream firm is thus unable to earn higher profits even when socially efficient entry is allowed. Hence, the inefficient incumbent supplier can deter socially efficient entry by using exclusive contracts even in the absence of economies of scale and downstream competition. These results have important implications for antitrust agencies, showing the importance of considering the existence of complementary inputs when examining cases of potential anticompetitive exclusive dealing.

Suggested Citation

  • Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2015. "Exclusive Contracts with Complementary Inputs," ISER Discussion Paper 0918r, Institute of Social and Economic Research, Osaka University, revised Sep 2015.
  • Handle: RePEc:dpr:wpaper:0918r
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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