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On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible

  • Fumagalli, Chiara

    (Università Bocconi)

  • Motta, Massimo

    (European University Institute)

  • Persson, Lars

    ()

    (Research Institute of Industrial Economics (IFN))

We extend the literature on exclusive dealing, which assumes that entry can occur only by installing new capacity, by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance. Third, exclusive dealing, despite allowing the more efficient technology to find its way into the industry, reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal, (ii) it leads to a sub-optimal contractual price when the exclusive dealing include a price commitment, (iii) it may deter entry altogether.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 718.

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Length: 25 pages
Date of creation: 20 Sep 2007
Date of revision:
Handle: RePEc:hhs:iuiwop:0718
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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  1. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  2. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  3. Chiara Fumagalli & Massimo Motta & Thomas Roende, 2009. "Exclusive dealing, entry, and mergers," CSEF Working Papers 225, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Fridolfsson, Sven-Olof, 2007. "A Consumer Surplus Defense in Merger Control," Working Paper Series 686, Research Institute of Industrial Economics.
  5. Neven, Damien J & Röller, Lars-Hendrik, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," CEPR Discussion Papers 2620, C.E.P.R. Discussion Papers.
  6. Persson, Lars, 2001. "Predation and Mergers: Is Merger Law Counterproductive?," CEPR Discussion Papers 2734, C.E.P.R. Discussion Papers.
  7. 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.
  8. Michael D. Whinston, 2001. "Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 63-80, Spring.
  9. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
  10. Farrell, Joseph, 2005. "Deconstructing Chicago on Exclusive Dealing," Competition Policy Center, Working Paper Series qt9wv3k43c, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  11. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
  12. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-42, April.
  13. repec:cup:cbooks:9780521016919 is not listed on IDEAS
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