How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?

46 Pages Posted: 7 Aug 2013 Last revised: 10 Jan 2020

See all articles by Hiroshi Kitamura

Hiroshi Kitamura

Kyoto Sangyo University

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Misato Sato

Kyoto Sangyo University

Date Written: September 19, 2017

Abstract

We provide a bilateral monopoly model with a downstream entrant to examine anticompetitive exclusive supply contracts that prevent the upstream supplier from selling input to the new downstream entrant. When the entrant is efficient regarding the technology to transform input produced by the supplier, the input demand cannot increase significantly through the entry. More importantly, considering socially efficient entry, the supplier cannot earn large profits. Hence, the inefficient downstream incumbent can deter socially efficient entry through exclusive supply contracts, even in the framework of the Chicago School argument, which comprises a single seller, buyer, and entrant.

Keywords: Antitrust policy, Entry deterrence, Exclusive supply contracts, Transformational technology

JEL Classification: L12, L41, L42

Suggested Citation

Kitamura, Hiroshi and Matsushima, Noriaki and Sato, Misato, How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements? (September 19, 2017). ISER Discussion Paper No. 878. Available at SSRN: https://ssrn.com/abstract=2306922

Hiroshi Kitamura

Kyoto Sangyo University ( email )

Motoyama, Kamigamo, Kita-Ku
Kyoto, Kyoto 603-8555
Japan

HOME PAGE: http://sites.google.com/view/hiroshikitamura/home

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Misato Sato

Kyoto Sangyo University ( email )

Motoyama Kamigamo
Kyoto, Kyoto 603-8555
Japan

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