On the competition enhancing effects of exclusive dealing contracts

Linda Gratz and Markus Reisinger

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 429-437

Abstract: Antitrust scholars have argued that exclusive contracts have anticompetitive, or at best neutral effects, if no efficiencies are generated. In contrast, this paper shows that exclusive contracts can have procompetitive effects, provided buyers are imperfect downstream competitors and contract breach is feasible. In that case, an efficient entrant is not necessarily foreclosed through exclusive contracts but induces buyers to breach. Because breaching buyers have to pay expectation damages to the incumbent, the downstream profits they obtain when breaching must be large enough. Therefore, the entrant needs to set a lower wholesale price than absent exclusive contracts, leading to lower final consumer prices and higher welfare.

Keywords: Exclusive contracts; Contract breach; Antitrust policy (search for similar items in EconPapers)
JEL-codes: D43 K21 L12 L42 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:429-437

DOI: 10.1016/j.ijindorg.2013.07.008

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