February 1996 (Last Version: December 1992) In this paper, we provide a conceptual framework for understanding the phenomenon of exclusive dealing, and we explore the motivations for and effects of its use. For a broad class of models, we characterize the outcome of a contracting game in which manufacturers may employ exclusive dealing provisions in their contracts. We then apply this characterization to a sequence of specialized settings. We demonstrate that exclusionary contractual provisions may be irrelevant, anticompetitive, or efficiency-enhancing, depending upon the setting. More specifically, we exhibit the potential for anticompetitive effects in non-coincident markets (that is, markets other than the ones in which exclusive dealing is practiced), and we explore the potential for the enhancement of efficiency in a setting where common representation gives rise to incentive conflicts. In each instance, we describe the manner in which equilibrium outcomes would be altered by a ban on exclusive dealing. We demonstrate that a ban may have surprisingly subtle and unintended effects.
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- B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
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- 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.
- Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
- David Besanko & Martin K. Perry, 1993. "Equilibrium Incentives for Exclusive Dealing in a Differentiated Products Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 646-668, Winter.
- Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
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