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Exclusive dealing, entry, and mergers

This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 225.

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Date of creation: 01 May 2009
Date of revision:
Publication status: Published in Journal of Industrial Economics,Volume 57, Issue 4, December 2009, pp. 785–811
Handle: RePEc:sef:csefwp:225
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  1. B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
  2. Persson, Lars, 1999. "Predation and Mergers: Is Merger Law Counterproductive?," Working Paper Series 516, Research Institute of Industrial Economics.
  3. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  4. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  5. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  6. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
  7. Joseph Farrell, 2005. "Deconstructing Chicago on Exclusive Dealing," Industrial Organization 0504017, EconWPA.
  8. 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.
  9. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
  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.
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