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Deconstructing Chicago on Exclusive Dealing

  • Joseph Farrell

    (Department of Economics, University of California at Berkeley)

While exclusive dealing can be efficient, the Chicago School has also argued that it cannot be anticompetitive, or that it seldom is. That argument takes two forms; both are weak. First, a pricetheory argument (“the Chicago Three-Party Argument”) depends crucially on a special model of oligopoly and predicts that we will never see what we see. I show how simply replacing the embedded oligopoly model suggests new efficiency and anticompetitive motives for exclusive dealing; these motives differ markedly from those usually discussed. Second, “the Chicago Vertical Question” is a challenge to theories of anticompetitive vertical practices, including exclusive dealing. While that Question is salutary and helpful, its apparent force dissipates if we pay careful attention to externalities, as others have noted, and to the issue of alternatives versus benchmarks, as I describe below. Overall, economic logic does not support any general presumption that exclusive dealing is efficient.

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File URL: http://128.118.178.162/eps/io/papers/0504/0504017.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0504017.

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Length: 15 pages
Date of creation: 14 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0504017
Note: Type of Document - pdf; pages: 15
Contact details of provider: Web page: http://128.118.178.162

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