How Does Downstream Firms’ Efficiency Affect Exclusive Supply Agreements?

Hiroshi Kitamura (), Noriaki Matsushima and Misato Sato ()
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Hiroshi Kitamura: Kyoto Sangyo University
Misato Sato: Okayama University

Review of Industrial Organization, 2024, vol. 64, issue 2, No 2, 219-242

Abstract: Abstract We develop a bilateral monopoly model with a downstream entrant to examine anticompetitive exclusive supply contracts that prevent the upstream supplier from selling inputs to the downstream entrant. When the entrant is more efficient and needs a lesser amount of the input that is produced by the supplier than does the incumbent, the input demand may not increase significantly following the entry. Therefore, the socially efficient entry does not increase the supplier’s profits significantly, which allows the downstream incumbent to deter socially efficient entry through an exclusive supply contract. This result holds even in the simplest framework, which is composed of a single seller, buyer, and entrant.

Keywords: Antitrust policy; Entry deterrence; Exclusive supply contracts; Transformational technology; Input price discrimination (search for similar items in EconPapers)
JEL-codes: C72 L12 L41 L42 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements? (2015)
Working Paper: How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements? (2013)
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DOI: 10.1007/s11151-023-09932-y

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