Exclusivity, Competition and the Irrelevance of Internal Investment
15 Pages Posted: 4 Oct 2009 Last revised: 9 Oct 2009
Date Written: October 1, 2009
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: Suggested Citation