Exclusive Dealing and Entry When Buyers Compete

22 Pages Posted: 8 Nov 2002  

Chiara Fumagalli

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Massimo Motta

Universitat Pompeu Fabra

Date Written: August 2002

Abstract

Rasmusen et al. (1991) and Segal and Whinston (2000) show that an incumbent monopolist might exclude entry of a more efficient competitor, by exploiting externalities among buyers. We show that their results hold only when downstream competition among buyers does not exist or is weak enough. Under fierce downstream competition, the incumbent cannot compensate a deviant buyer who buys from the more efficient entrant. Any such buyer will become more competitive and increase their output - thus triggering entry - and profits at the expense of buyers who sign an exclusive deal with the incumbent. Hence, exclusive deals cannot deter efficient entry.

Keywords: anticompetitive behaviour, foreclosure, buyers' coordination

JEL Classification: K21, L12, L42

Suggested Citation

Fumagalli, Chiara and Motta, Massimo, Exclusive Dealing and Entry When Buyers Compete (August 2002). CEPR Discussion Paper No. 3493. Available at SSRN: https://ssrn.com/abstract=331540

Chiara Fumagalli (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5311 (Phone)
+39 02 5836 5318 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Massimo Motta

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

Paper statistics

Downloads
28
Abstract Views
1,489