Entry deterrrence via renegotiation-proof non-exclusive contracts

Aggey Semenov and Julian Wright

No 1105E, Working Papers from University of Ottawa, Department of Economics

Abstract: We establish the entry-deterring role of vertical contracts in a setting that does not rely on asymmetric information, the exclusivity of the incumbent’s contracts, limits on distribution channels, or restrictions on the ability to renegotiate contracts in case of entry. The optimal contract we describe is a three-part quantity discounting contract that involves the payment of an allowance to the downstream firm and a marginal wholesale price below the incumbent’s marginal cost for sufficiently large quantities

Keywords: entry; vertical contracts; exclusivity; renegotiation (search for similar items in EconPapers)
JEL-codes: D21 L42 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta and nep-ind
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