Exclusive Dealing Contract and Inefficient Entry Threat

Article, Preprint OPEN
Noriyuki Yanagawa ; Ryoko Oki (2008)
  • Journal: Economics Bulletin, volume 30, issue 3, pages 2,478-2,485
  • Subject: Exclusive Dealing, Entry Threat, Vertical Restraint, Antitrust
    • jel: jel:L4 | jel:L1

This paper examines the effects of exclusive dealing contracts in a simple model with manufacturers-distributors relations. We consider entrants in both manufacturing and distribution sectors. It is well-known that a potential entry threat is welfare increasing under homogenous price competition, even though the potential entrant is less productive. This paper reexamines this intuition by employing the above model. We show that the entry threat of a less-productive manufacturer is welfare decreasing when there is an exclusive dealing contract between the incumbent manufacturer and distributor. This result is in contrast to the view of the contestable markets literature.
  • References (11)
    11 references, page 1 of 2

    [1] Abito, J. M and J. Wright (2008) “Exclusive dealing with imperfect downstream competition” International Journal of Industrial Organization 26, 227-246.

    [2] Armstrong, M. (2006) “Competition in two-sided markets”RAND Journal of Economics 37, 668-691.

    [3] Aghion, P and P. Bolton (1987) “Contracts as a Barrier to Entry”American Economic Review 77, 388-401.

    [4] Comanor, W.S and P. Rey (2000) “Vertical Restraints and the Market Power of Large Distributors” Review of Industrial Organization 17, 135-153.

    [5] Fumagalli, C and M. Motta (2006) “Exclusive Dealing and Entry, When Buyers Compete” American Economic Review 96, 785-795.

    [6] Miklos-Thal, J, P. Rey, and T. Verge, forthcoming. “Buyer Power and Intrabrand Coordination” Journal of the European Economic Association.

    [7] Oki, R and N. Yanagawa (2009) “Exclusive Dealing and Large Distributors” CIRJE Discussion Papers, CIRJE-F-626, Faculty of Economics, University of Tokyo.

    [8] Oki, R and N. Yanagawa (2010) “Exclusive Dealing and the Market Power of Buyers” CIRJE Discussion Papers, CIRJE-F-748, Faculty of Economics, University of Tokyo.

    [9] Rey, P and J. Tirole (2007) “A primer on foreclosure”in Handbook of Industrial Organization Volume 3, by M. Armstrong and R. H. Porter, Eds., Amsterdam: North-Holland, 2145-2220.

    [10] Simpson, J and A. L. Wickelgren (2007) “Naked Exclusion, E¢ cient Breach and Downstream Competition” American Economic Review 97, 1305-1314.

  • Metrics
    No metrics available
Share - Bookmark