Exclusive Dealing as a Barrier to Entry? Evidence from Automobiles

55 Pages Posted: 13 Jan 2012  

Laura Nurski

KU Leuven - Faculty of Business and Economics (FEB)

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2011

Abstract

Exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market. We ask whether such contracts may act as an entry barrier, and provide an empirical analysis of the European car market. We first estimate a demand model with product and spatial differentiation, and quantify the role of a dense distribution network in explaining the car manufacturers’ market shares. We then perform policy counter-factuals to assess the pro.t incentives and entry-deterring effects of exclusive dealing. We find that there are no individual incentives to maintain exclusive dealing, but there can be a collective incentive by the industry as a whole, even absent efficiencies. Furthermore, a ban on exclusive dealing would shift market shares from the larger European firms to the smaller entrants. More importantly, consumers would gain substantially, mainly because of the increased spatial availability and less so because of intensified price competition. Our findings suggest that the European Commission’s recent decision to facilitate exclusive dealing in the car market may not have been warranted.

Keywords: exclusive dealing, vertical restraints, foreclosure, automotive industry

JEL Classification: L42, L62, L14

Suggested Citation

Nurski, Laura and Verboven, Frank, Exclusive Dealing as a Barrier to Entry? Evidence from Automobiles (December 1, 2011). Available at SSRN: https://ssrn.com/abstract=1984562 or http://dx.doi.org/10.2139/ssrn.1984562

Laura Nurski

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Frank Verboven (Contact Author)

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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