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Exclusive Quality

Author

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  • Argenton, Cédric

    (Dept. of Economics, Stockholm School of Economics)

Abstract

It is shown in this study that in the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can always offer high enough an upfront payment to induce all retailers to sign on the contract.

Suggested Citation

  • Argenton, Cédric, 2006. "Exclusive Quality," SSE/EFI Working Paper Series in Economics and Finance 640, Stockholm School of Economics, revised 05 Jun 2007.
    • Handle: RePEc:hhs:hastef:0640
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    References listed on IDEAS

    as
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    14. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
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    18. Yong, Jong-Say, 1999. "Exclusionary Vertical Contracts and Product Market Competition," The Journal of Business, University of Chicago Press, vol. 72(3), pages 385-406, July.
    19. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
    20. Julian Wright, 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment," American Economic Review, American Economic Association, vol. 99(3), pages 1070-1081, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kitamura Hiroshi, 2011. "Exclusive Contracts under Financial Constraints," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-31, September.
    2. Zhijun Chen & Greg Shaffer, 2019. "Market Share Contracts, Exclusive Dealing, and the Integer Problem," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 208-242, February.
    3. Hiroshi Kitamura & Misato Sato & Koki Arai, 2014. "Exclusive contracts when the incumbent can establish a direct retailer," Journal of Economics, Springer, vol. 112(1), pages 47-60, May.
    4. Zhijun Chen & Greg Shaffer, 2016. "Are Market-Share Contracts a Poor Man’s Exclusive Dealing?," Monash Economics Working Papers 44-16, Monash University, Department of Economics.
    5. Kitamura, Hiroshi & Matsushima, Noriaki & Sato, Misato, 2018. "Exclusive contracts with complementary inputs," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 145-167.
    6. Zhijun Chen & Greg Shaffer, 2014. "Naked exclusion with minimum-share requirements," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 64-91, March.
    7. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2024. "How Does Downstream Firms’ Efficiency Affect Exclusive Supply Agreements?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(2), pages 219-242, March.
    8. repec:dpr:wpaper:0878 is not listed on IDEAS
    9. 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.
    10. Hiroshi Kitamura & Akira Miyaoka & Misato Sato, 2016. "Relationship-specific investment as a barrier to entry," Journal of Economics, Springer, vol. 119(1), pages 17-45, September.
    11. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    12. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2021. "Defending home against giants: Exclusive dealing as a survival strategy for local firms," ISER Discussion Paper 1122, Institute of Social and Economic Research, Osaka University.
    13. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2018. "Naked exclusion under exclusive-offer competition," ISER Discussion Paper 1021, Institute of Social and Economic Research, Osaka University.
    14. John Asker & Heski Bar-Isaac, 2010. "Exclusionary Minimum Resale Price Maintenance," NBER Working Papers 16564, National Bureau of Economic Research, Inc.
    15. Karp Larry S. & Perloff Jeffrey M., 2013. "Vertical Contracts and Mandatory Universal Distribution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 595-626, October.
    16. repec:dpr:wpaper:0918 is not listed on IDEAS

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    More about this item

    Keywords

    vertical differentiation; contracts; exclusion; monopolization;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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