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Do Exclusivity Arrangments Harm Consumers?

  • Jihui Chen

    ()

    (Department of Economics, Illinois State University
    Department of Strategy and Policy, National University of Singapore)

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    This paper explores welfare implications of exclusivity arrangements, e.g. iPhone?s part- nership with wireless carriers. Two ?rms compete in a primary good market, while a monop- olistic ?rm o¤ers a value-adding good. The primary good can be consumed alone, while the value-adding good must be consumed with the primary good. The monopolistic ?rm forms an exclusivity partnership with one of the primary good providers. Buyers are able to consume the value-adding good only if they patronize the monopolistic ?rm?s exclusive partner. This practice allows the monopolistic ?rm to extract surplus from the primary good market. Sur- prisingly, consumers bene?t from the exclusivity arrangement. However, overall social welfare declines, despite improvements to consumer welfare.

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    File URL: http://economics.illinoisstate.edu/RePec/Papers/iPhone1015.pdf
    File Function: First version, 2011
    Download Restriction: no

    Paper provided by Illinois State University, Department of Economics in its series Working Paper Series with number 20111001.

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    Length: 28 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:ils:wpaper:20111001
    Contact details of provider: Web page: http://economics.illinoisstate.edu

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