Exclusivity, Competition and the Irrelevance of Internal Investment

de Fontenay, Catherine; Groves, Vivienne; Gans, Joshua S.

doi:10.2139/ssrn.1481482

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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

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: 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