IDEAS home Printed from https://ideas.repec.org/p/hhs/iuiwop/0718.html
   My bibliography  Save this paper

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

Author

Listed:
  • Fumagalli, Chiara

    (Università Bocconi)

  • Motta, Massimo

    (European University Institute)

  • Persson, Lars

    () (Research Institute of Industrial Economics (IFN))

Abstract

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.

Suggested Citation

  • Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2007. "On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible," Working Paper Series 718, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0718
    as

    Download full text from publisher

    File URL: http://www.ifn.se/Wfiles/wp/wp718.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Fumagalli, Chiara & Motta, Massimo & Persson, Lars, 2005. "Exclusive Dealing, Entry and Mergers," CEPR Discussion Papers 4902, C.E.P.R. Discussion Papers.
    3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
    4. Persson, Lars, 2004. "Predation and mergers: Is merger law counterproductive?," European Economic Review, Elsevier, vol. 48(2), pages 239-258, April.
    5. Neven, Damien J. & Roller, Lars-Hendrik, 2005. "Consumer surplus vs. welfare standard in a political economy model of merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 829-848, December.
    6. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
    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. Fridolfsson, Sven-Olof, 2007. "A Consumer Surplus Defense in Merger Control," Working Paper Series 686, Research Institute of Industrial Economics.
    9. Yamey, B S, 1972. "Predatory Price Cutting: Notes and Comments," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 129-142, April.
    10. 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.
    11. 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.
    12. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2010. "Buying to Sell: A Theory of Buyouts," Working Paper Series 817, Research Institute of Industrial Economics.
    2. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim Ingemar, 2012. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CEPR Discussion Papers 8992, C.E.P.R. Discussion Papers.
    3. Dongyeol Lee, 2015. "The Competitive Effect of Exclusive Dealing in the Presence of Renegotiation Breakdown," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(1), pages 25-50, August.

    More about this item

    Keywords

    Technology Transfer; Inefficient Entry; Antitrust; Authority's Behavior;

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:0718. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson). General contact details of provider: http://edirc.repec.org/data/iuiiise.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.