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Deconstructing Chicago on Exclusive Dealing

UC Berkeley Competition Policy Center Working Paper No. CPC05-053

15 Pages Posted: 24 Apr 2005  

Joseph Farrell

University of California, Berkeley - Department of Economics

Date Written: March 2005

Abstract

While exclusive dealing can be efficient, the Chicago School has also argued that it cannot be anticompetitive, or that it seldom is. That argument takes two forms; both are weak. First, a price theory argument ("the Chicago Three-Party Argument") depends crucially on a special model of oligopoly and predicts that we will never see what we see. I show how simply replacing the embedded oligopoly model suggests new efficiency and anticompetitive motives for exclusive dealing; these motives differ markedly from those usually discussed. Second, "the Chicago Vertical Question" is a challenge to theories of anticompetitive vertical practices, including exclusive dealing.

While that Question is salutary and helpful, its apparent force dissipates if we pay careful attention to externalities, as others have noted, and to the issue of alternatives versus benchmarks, as I describe below. Overall, economic logic does not support any general presumption that exclusive dealing is efficient.

Keywords: Exclusive dealing, vertical restraints, monopoly, antitrust

JEL Classification: L42, L12, K21

Suggested Citation

Farrell, Joseph, Deconstructing Chicago on Exclusive Dealing (March 2005). UC Berkeley Competition Policy Center Working Paper No. CPC05-053. Available at SSRN: https://ssrn.com/abstract=704163 or http://dx.doi.org/10.2139/ssrn.704163

Joseph Farrell (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

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