Naked Exclusion and the Volatility of Innovation

Christodoulos Stefanadis

American Economic Journal: Microeconomics, 2016, vol. 8, issue 3, 39-50

Abstract: The analysis shows that the volatility of a potential entrant's innovation is an important parameter that shapes an incumbent supplier's exclusivity strategy. Higher volatility encourages the incumbent supplier to adopt an accommodation strategy rather than a pure exclusion strategy. When volatility is above a threshold, the incumbent always chooses accommodation regardless of the expected size of the entrant's innovation. And since an accommodation strategy merely redistributes surplus without blocking efficient entry, it may not warrant a prohibition of exclusivity contracts by the antitrust authorities.

JEL-codes: D86 K21 L13 L14 L42 O31 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mic.20150072
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Citations: View citations in EconPapers (5)

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