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Exclusivity, Competition and the Irrelevance of Internal Investment

Catherine De Fontenay
University of Melbourne - Melbourne Business School; Department of Economics

Vivienne Groves
Melbourne Business School

Joshua S. Gans
University of Melbourne - Melbourne Business School; University of Melbourne - Department of Economics

October 1, 2009


Abstract:     
This paper considers the effect of exclusive contracts on investment decisions in a market with two upstream and two downstream firms. Segal and Whinston’s (2000) irrelevance result is generalized and it is shown that exclusive contracts have no effect on the equilibrium level of internal investment for the contracted parties when competition exists in both the upstream and downstream markets. Furthermore, by considering a more competitive environment we are able to demonstrate that strongly internal investment by rival upstream-downstream bargaining pairs is similarly unaffected by the presence of exclusive contracts.

Keywords: exclusive contracts, irrelevance result, Shapley value, upstream competition, bargaining

JEL Classifications: L42

Working Paper Series

Date posted: October 04, 2009 ; Last revised: October 09, 2009

Suggested Citation

De Fontenay, Catherine C., Groves, Vivienne and Gans, Joshua S., Exclusivity, Competition and the Irrelevance of Internal Investment (October 1, 2009). Available at SSRN: http://ssrn.com/abstract=1481482


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Contact Information

Joshua S. Gans (Contact Author)
University of Melbourne - Melbourne Business School ( email )
200 Leicester Street
Carlton, Victoria 3053 Australia
+61 3 9349 8173 (Phone)
+61 3 9349 8169 (Fax)
University of Melbourne - Department of Economics ( email )
Melbourne Australia
+61 3 9349 8173 (Phone)
Catherine C. De Fontenay
University of Melbourne - Melbourne Business School ( email )
200 Leicester Street
Carlton, Victoria 3053 Australia
Department of Economics ( email )
Melbourne Australia
61383443604 (Phone)
61383446899 (Fax)
Vivienne Groves
Melbourne Business School ( email )
200 Leicester Street
Carlton, Victoria 3053 Australia
+61 (3) 9349 8734 (Phone)
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