Naked Exclusion: Towards a Behavioral Approach to Exclusive Dealing

Abstract

We report experimental results on exclusive dealing inspired by the literature on “naked exclusion”. Our key findings are: First, exclusion of a more efficient entrant is a widespread phenomenon in lab markets. Second, allowing incumbents to discriminate between buyers increases exclusion rates compared to the non-discriminatory case only when payments to buyers can be offered sequentially and secretly. Third, allowing discrimination does not lead to significant decreases in costs of exclusion. Accounting for the observation that buyers are more likely to accept an exclusive deal the higher is the payment, substantially improves the fit between theoretical predictions and observed behavior.

Keywords: exclusive dealing, entry deterrence, foreclosure, contracts, externalities, coordination, experiments

JEL Classification: C91, L12, L42