Exclusive Quality

CentER Discussion Paper No. 2008-20

TILEC Discussion Paper No. 2008-007

27 Pages Posted: 20 Feb 2008 Last revised: 23 Feb 2009

See all articles by Cédric Argenton

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.

Keywords: vertical differentiation, exclusive dealing, contracts, naked exclusion, monopolization

JEL Classification: L12, L42

Suggested Citation

Argenton, Cédric, Exclusive Quality (February 2008). CentER Discussion Paper No. 2008-20, TILEC Discussion Paper No. 2008-007, Available at SSRN: https://ssrn.com/abstract=1095674 or http://dx.doi.org/10.2139/ssrn.1095674

Cédric Argenton (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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