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Do Exclusivity Arrangments Harm Consumers?

Author

Listed:
  • Jihui Chen

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

Abstract

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.

Suggested Citation

  • Jihui Chen, 2011. "Do Exclusivity Arrangments Harm Consumers?," Working Paper Series 20111001, Illinois State University, Department of Economics.
  • Handle: RePEc:ils:wpaper:20111001
    as

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

    References listed on IDEAS

    as
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    More about this item

    Keywords

    exclusivity; consumer welfare; market efficiency; hotelling;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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