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Do exclusivity arrangements harm consumers?

Jihui Chen () and Qiang Fu ()
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Jihui Chen: Illinois State University
Qiang Fu: National University of Singapore

Journal of Regulatory Economics, 2017, vol. 51, issue 3, 311-339

Abstract: Abstract This paper explores the ramifications of exclusivity arrangements, e.g., iPhone’s partnership with wireless carriers, for market competition and consumer welfare. Two firms compete in a primary good market, and a monopolistic firm offers a value-adding good. The primary good can be consumed alone, while the value-adding good must be consumed with the primary good. The monopolistic firm forms an exclusivity partnership with one of the primary good providers. Buyers are able to consume the value-adding good only if they patronize the monopolistic firm’s exclusive partner. This practice allows the monopolistic firm to extract surplus from the primary good market. Surprisingly, consumers benefit from the exclusivity arrangement. However, overall social welfare declines, despite improvements to consumer welfare.

Keywords: Exclusivity; Consumer welfare; Market efficiency; Hotelling; Two-part pricing (search for similar items in EconPapers)
JEL-codes: L1 L2 L4 L5 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11149-017-9325-y

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