The strategic impact of voluntary vs. mandated vertical restraints and termination restrictions on exclusion of rivals

Abstract

It has been shown that manufacturers can employ vertical practices and restraints to prevent entry in markets where upstream entrants require downstream accommodation. I show that if downstream product investment is important and encouraged by the restraint, foreclosing entry this way may not be credible. Additionally, publicly mandated vertical restraints could prevent foreclosure, but if mandates reduce downstream product investment, mandates could have the opposite effect and decrease entry.

Keywords: vertical restraints, entry, antitrust, regulation

JEL Classification: L12, L42, L51