Exclusive Dealing with Costly Rent Extraction

48 Pages Posted: 24 May 2016

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Vincenzo Denicolò

University of Leicester

Piercarlo Zanchettin

University of Leicester

Date Written: May 2016

Abstract

We analyze the impact of exclusive contracts on the intensity of competition among firms that supply substitute products. Exclusive contracts would be neutral if firms priced at marginal cost and extracted buyers' rent by means of non distortionary fixed fees. We focus instead on the case in which rent extraction is costly, and hence firms distort marginal prices upwards. We show that in this case exclusive contracts are anti-competitive when the dominant firm enjoys a large enough competitive advantage over its rivals, and are pro-competitive, or neutral, when the competitive advantage is small. These effects appear as soon as marginal prices are distorted upwards, irrespective of which specific factors impede perfect rent extraction.

Keywords: Antitrust, Dominant firm, Exclusive dealing, Rent extraction

JEL Classification: D42, D82, L42

Suggested Citation

Calzolari, Giacomo and Denicolò, Vincenzo and Zanchettin, Piercarlo, Exclusive Dealing with Costly Rent Extraction (May 2016). CEPR Discussion Paper No. DP11291, Available at SSRN: https://ssrn.com/abstract=2783311

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna ( email )

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HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Vincenzo Denicolò

University of Leicester

University Road
Leicester, LE1 7RH
United Kingdom

Piercarlo Zanchettin

University of Leicester ( email )

Department of Economics
Leicester, LE1 7RH
United Kingdom

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