Exclusive Dealing and Entry, when Buyers Compete
American Economic Review
vol. 96,
no. 3, June 2006
(pp. 785-795)
Abstract
Rasmusen et al. (1991) and Segal and Whinston (2000) show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers. We show that their results hold only when downstream competition among buyers is weak. Under fierce downstream competition, if entry took place, a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent. Anticipating that orders from a single buyer would trigger entry, no buyer will sign the exclusive deal and entry will occur. This result is robust across different specifications of the game. (JEL: K21, L12, L42)Citation
Fumagalli, Chiara, and Massimo Motta. 2006. "Exclusive Dealing and Entry, when Buyers Compete." American Economic Review, 96 (3): 785-795. DOI: 10.1257/aer.96.3.785Additional Materials
JEL Classification
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 Oligopoly and Other Imperfect Markets
- L14 Transactional Relationships; Contracts and Reputation; Networks