Exclusivity Contracts, Insurance and Financial Market Foreclosure

22 Pages Posted: 23 Dec 2012

See all articles by Cédric Argenton

Cédric Argenton

Tilburg University - Tilburg University School of Economics and Management; Tilburg Law and Economics Center (TILEC)

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC; University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: December 2012

Abstract

We study the trade‐off between the positive effects (risk‐sharing) and negative effects (exclusion) of exclusivity contracts. We revisit the seminal model of Aghion and Bolton [] under risk‐aversion and show that although exclusivity contracts induce optimal risk‐sharing, they can be used not only to deter the entry of a more efficient rival into the product market but also to crowd out financial investors willing to insure the buyer at competitive rates. We further show that in a world without financial investors, purely financial bilateral instruments, such as forward contracts, achieve optimal risk‐sharing without distorting product market outcomes. Thus, risk‐sharing alone cannot be invoked to defend exclusivity contracts.

Suggested Citation

Argenton, Cédric and Argenton, Cédric and Willems, Bert, Exclusivity Contracts, Insurance and Financial Market Foreclosure (December 2012). The Journal of Industrial Economics, Vol. 60, Issue 4, pp. 609-630, 2012, Available at SSRN: https://ssrn.com/abstract=2193190 or http://dx.doi.org/10.1111/joie.12000

Cédric Argenton (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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