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On the Competition Enhancing Effects of Exclusive Dealing Contracts

33 Pages Posted: 12 Aug 2011 Last revised: 28 Feb 2013

Linda Gratz

E.CA Economics; Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE)

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 12, 2011

Abstract

Antitrust scholars have argued that exclusive contracts have anticompetitive, or at best neutral effects, if no efficiencies are generated. In contrast, this paper shows that exclusive contracts can have procompetitive effects, provided buyers are imperfect downstream competitors and contract breach is feasible. In that case, an efficient entrant is not necessarily foreclosed through exclusive contracts but induces buyers to breach. Because breaching buyers have to pay expectation damages to the incumbent, the downstream profits they obtain when breaching must be large enough. Therefore, the entrant needs to set a lower wholesale price than absent exclusive contracts, leading to lower final consumer prices and higher welfare.

Keywords: exclusive contracts, contract breach, antitrust policy

JEL Classification: D43, K21, L12, L42

Suggested Citation

Gratz, Linda and Reisinger, Markus, On the Competition Enhancing Effects of Exclusive Dealing Contracts (August 12, 2011). Available at SSRN: https://ssrn.com/abstract=1908630 or http://dx.doi.org/10.2139/ssrn.1908630

Linda Gratz

E.CA Economics ( email )

Schlossplatz 1
Berlin, 10178
Germany
+49 30 21231 7087 (Phone)
+49 30 21231 7099 (Fax)

Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE)

Kaulbachstrasse 45
M├╝nchen, 80539
Germany

Markus Reisinger (Contact Author)

Frankfurt School of Finance & Management - Economics Department ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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