Naked exclusion with minimum-share requirements

Zhijun Chen and Greg Shaffer

RAND Journal of Economics, 2014, vol. 45, issue 1, 64-91

Abstract: type="main">

We consider a class of contracts in which buyers commit to giving a seller some minimum share of their total purchases. We show that such contracts can be used by an incumbent seller to reduce the probability of entry by a rival seller when the incumbent can commit to its selling price as part of the contract. We further show that such contracts can be profitable for the incumbent even when exclusive dealing would not be, and even when buyers can coordinate their accept-or-reject decisions. The average price paid by the buyers will be higher and welfare will be lower whether or not the incumbent's exclusionary conduct turns out to be successful in preventing entry.

Date: 2014
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