Exclusive Contracts with Complementary Inputs
40 Pages Posted: 9 Jan 2015 Last revised: 29 Nov 2017
Date Written: November 29, 2017
This study constructs a model of anticompetitive exclusive contracts in the presence of complementary inputs. A downstream firm transforms multiple complementary inputs into final products. When complementary input suppliers have market power, upstream competition within a given input market benefits not only the downstream firm, but also the complementary input suppliers, by raising complementary input prices. Thus, the downstream firm is unable to earn higher profits, even when socially efficient entry is allowed. Hence, the inefficient incumbent supplier can deter socially efficient entry by using exclusive contracts, even in the absence of scale economies, downstream competition, and relationship-specific investment.
Keywords: Antitrust policy; Complementary inputs; Exclusive dealing; Multiple inputs
JEL Classification: L12, L41, L42
Suggested Citation: Suggested Citation