Exclusive dealing, entry, and mergers
We extend the literature on exclusive dealing 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 than in the case where entry can occur only by installing new capacity. Third, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas de-novo entry would be socially optimal (ii) it may deter entry altogether. Finally, we show that when exclusive deals include a commitment to future prices, they will increase welfare.
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- B. Douglas Bernheim & Michael D. Whinston, .
96008, Stanford University, Department of Economics.
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"Predation and Mergers: Is Merger Law Counterproductive?,"
CEPR Discussion Papers
2734, C.E.P.R. Discussion Papers.
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- Joseph Farrell, 2005.
"Deconstructing Chicago on Exclusive Dealing,"
- Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
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- 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.
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