Competition for Exclusivity of a Superior Product and Quality Implications

38 Pages Posted: 22 Nov 2022 Last revised: 30 Nov 2023

See all articles by Özlem Bedre-Defolie

Özlem Bedre-Defolie

European School of Management and Technology; European University Institute - Economics Department (ECO); European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for a Digital Society; Centre for Economic Policy Research (CEPR); University of Bergen

Gary Biglaiser

University of North Carolina

Date Written: November 16, 2022

Abstract

Two horizontally differentiated firms compete for exclusivity of a "superior product," which can either reduce the cost of quality provision or improve the firm's product offerings. Exclusive dealing is the unique equilibrium if and only if it strictly increases industry profit. If the quality pass-through of the firm with exclusivity is above one, exclusivity lowers consumer surplus, e.g., when competition is sufficiently weak. With demand asymmetry, the big firm wins exclusivity and consumer harm is lower. Banning only big firm exclusivity might lower total welfare and consumer surplus. With cost asymmetry, the less efficient firm can win exclusivity.

Keywords: Exclusive dealing, superior product, quality provision, pricing

JEL Classification: L13, L19, L24, L50

Suggested Citation

Bedre-Defolie, Özlem and Biglaiser, Gary, Competition for Exclusivity of a Superior Product and Quality Implications (November 16, 2022). Available at SSRN: https://ssrn.com/abstract=4278448 or http://dx.doi.org/10.2139/ssrn.4278448

Özlem Bedre-Defolie (Contact Author)

European School of Management and Technology ( email )

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

Villa La Fonte
Via delle Fontanelle 18
Florence, Fiesole 50014
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for a Digital Society ( email )

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bergen ( email )

Muséplassen 1
N-5008 Bergen, +47 55 58
Norway

Gary Biglaiser

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

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