Exclusive Contracts When the Incumbent can Establish a Direct Retailer

Abstract

This paper constructs a model of anticompetitive exclusive dealings with potential downstream competition. Unlike in previous studies, the incumbent can establish a direct retailer with some fixed payment and can offer an exclusive contract to a downstream buyer twice. We show that the existence of these two options helps the incumbent deter socially efficient entry and earn almost monopoly profits even in the absence of scale economies and downstream competition.

Keywords: vertical relation, exclusive dealing, direct retailers, two offers

JEL Classification: L12, L41, L42