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Staggered Contracts, Market Power and Welfare

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  • Luis Cabral

Abstract

I show that exclusive, staggered supply contracts can decrease industry competition when there are economies of scale: buyers pay a higher price to the incumbent seller and the expected value received by an entrant seller is lower when contracts are staggered. Moreover, under staggered contracts there may exist equilibria where an inefficient firm forecloses a more efficient one. Given that contracts are staggered, contract length further increases market power; however, increasing contract length may also eliminate the inefficient foreclosure equilibrium. Finally, I show that, allowing firms to choose contract structure endogenously, the resulting equilibrium path features staggered contracts.
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Suggested Citation

  • Luis Cabral, 2014. "Staggered Contracts, Market Power and Welfare," Working Papers 14-13, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:14-13
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    File URL: http://w4.stern.nyu.edu/economics/docs/workingpapers/2014/Cabral_StaggeredContracts_July2014.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Aguiar, Luis & Gagnepain, Philippe, 2022. "Absorptive capacity, knowledge spillovers and incentive contracts," International Journal of Industrial Organization, Elsevier, vol. 82(C).

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    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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