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American Economic Review: Vol. 99 No. 3 (June 2009)

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Exclusive Dealing and Entry, When Buyers Compete: Comment

Article Citation

Wright, Julian. 2009. "Exclusive Dealing and Entry, When Buyers Compete: Comment." American Economic Review, 99(3): 1070-81.

DOI: 10.1257/aer.99.3.1070

Abstract

In a recent paper, Chiara Fumagalli and Massimo Motta (2006) challenge the idea that an incumbent can foreclose efficient entry in the face of scale economies by using exclusive contracts. They claim that inefficient exclusion does not arise when buyers are homogenous firms that compete downstream. However, when upstream firms can compete in two-part tariffs, their equilibrium analysis contains some errors. Fixing these errors, inefficient exclusion arises when scale economies are sufficiently large or the entrant's cost advantage is not too big. Inefficient exclusion arises to protect industry profits from competition. (JEL L11, L13, L14)

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Authors

Wright, Julian (National U Singapore)

JEL Classifications

L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L13: Oligopoly and Other Imperfect Markets
L14: Transactional Relationships; Contracts and Reputation; Networks


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