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Exclusive Dealing: The Interaction between Foreclosure and Investment Promotion

  • Chiara Fumagalli

    (Bocconi University)

  • Massimo Motta

    (Bologna University and CEPR)

  • Thomas Rønde

    (Copenhagen Business School and CEPR)

This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.120.

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Date of creation: Dec 2009
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Handle: RePEc:fem:femwpa:2009.120
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