Exclusive Dealing and Entry, when Buyers Compete

Chiara Fumagalli () and Massimo Motta ()

American Economic Review, 2006, vol. 96, issue 3, 785-795

Abstract: Rasmusen et al. (1991) and Segal and Whinston (2000) show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers. We show that their results hold only when downstream competition among buyers is weak. Under fierce downstream competition, if entry took place, a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent. Anticipating that orders from a single buyer would trigger entry, no buyer will sign the exclusive deal and entry will occur. This result is robust across different specifications of the game. (JEL: K21, L12, L42)

Date: 2006
Note: DOI: 10.1257/aer.96.3.785
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