Exclusive Dealing and Entry, When Buyers Compete: Comment
Posted: 8 Nov 2009
Date Written: June 29, 2009
Abstract
In a recent paper, Chiara Fumagalli and Massimo Motta (2006) challenge the idea that an incumbent can foreclose efficient entry in the face of scale economies by using exclusive contracts. They claim that inefficient exclusion does not arise when buyers are homogenous firms that compete downstream. However, when upstream firms can compete in two-part tariffs, their equilibrium analysis contains some errors. Fixing these errors, inefficient exclusion arises when scale economies are sufficiently large or the entrant’s cost advantage is not too big. Inefficient exclusion arises to protect industry profits from competition.
Keywords: Exclusive deals, Foreclosure, Contracts
JEL Classification: L12, L13, L42
Suggested Citation: Suggested Citation