Exclusive Contracts and Market Dominance

55 Pages Posted: 9 Jul 2013

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Vincenzo Denicolò

University of Bologna

Date Written: July 2013

Abstract

We develop a theory of exclusive dealing that rehabilitates pre-Chicago-school analyses. Our theory rests on two realistic assumptions: that firms are imperfectly informed about demand, and that a dominant firm has a competitive advantage over its rivals. Under those assumptions, exclusive contracts tend to be pro-competitive when the dominant firm's competitive advantage is small, but are anti-competitive when it is more pronounced. In this latter case, the dominant firm uses exclusivity clauses as a means to increase its market share and profit, without necessarily driving its rivals out of the market, or impeding their entry. We discuss the implications of these results for competition policy.

Keywords: Dominant firm, Exclusive dealing, Non-linear pricing

JEL Classification: D42, D82, L42

Suggested Citation

Calzolari, Giacomo and Denicolo, Vincenzo, Exclusive Contracts and Market Dominance (July 2013). CEPR Discussion Paper No. DP9545, Available at SSRN: https://ssrn.com/abstract=2291366

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna ( email )

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HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Vincenzo Denicolo

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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