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Long-term contracts as barriers to entry with differentiated products

Sebnem Gavin and Thomas Ross

International Journal of Industrial Organization, 2018, vol. 59, issue C, 514-537

Abstract: We study long-term contracts as barriers to entry, departing from earlier literature in three important ways. First, the incumbent firm is allowed a period of monopoly prior to the entrant’s arrival, a period that opens up greater possibilities for mutually attractive long-term contracts. Second, our model allows for product differentiation – a generalization that is shown to have significant implications for the design and profitability of long-term contacts. Finally, we consider long-term contracts that are not exclusive and show how such contracts can nevertheless contribute to the profitable partial foreclosure of entrants.

Keywords: Long-term contracts; Barriers to entry; Differentiated products (search for similar items in EconPapers)
JEL-codes: L12 L41 L42 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:514-537