Exclusivity, Competition and the Irrelevance of Internal Investment

15 Pages Posted: 4 Oct 2009 Last revised: 9 Oct 2009

See all articles by Catherine de Fontenay

Catherine de Fontenay

University of Melbourne - Melbourne Business School

Vivienne Groves

Stanford Graduate School of Business

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Date Written: 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 Classification: L42

Suggested Citation

de Fontenay, Catherine C. and Groves, Vivienne and Gans, Joshua S., Exclusivity, Competition and the Irrelevance of Internal Investment (October 1, 2009). Available at SSRN: https://ssrn.com/abstract=1481482 or http://dx.doi.org/10.2139/ssrn.1481482

Catherine C. De Fontenay

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Vivienne Groves

Stanford Graduate School of Business ( email )

PhD Program
655 Knight Way
Stanford, CA 94305
United States

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
118
rank
222,950
Abstract Views
1,303
PlumX Metrics