Exclusive Dealing with Imperfect Downstream Competition
23 Pages Posted: 10 Jan 2006
Date Written: December 2005
The existing literature on exclusive dealing is extended to take into account that buyers signing exclusive deals are typically competing firms that are differentiated from the perspective of their customers. We show, provided such downstream firms are not too differentiated, exclusive contracts will foreclose a more efficient upstream firm. In this case, an established upstream firm and competing downstream firms raise their joint surplus by signing exclusive deals to protect the industry from upstream competition. Thus, inefficient Naked Exclusion arises even when the Chicago School logic that buyers will only sign contracts that make themselves (jointly) better off holds.
Keywords: exclusive contracts, Naked Exclusion, differentiated products
JEL Classification: L12, L13, L42
Suggested Citation: Suggested Citation