Staggered Contracts, Market Power, and Welfare

Luis Cabral

No 10095, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: I show that exclusive, staggered supply contracts can decrease industry competition when there are economies of scale: buyers pay a higher price to the incumbent seller and the expected value received by an entrant seller is lower when contracts are staggered. Moreover, under staggered contracts there may exist equilibria where an inefficient firm forecloses a more efficient one. Given that contracts are staggered, contract length further increases market power; however, increasing contract length may also eliminate the inefficient foreclosure equilibrium. Finally, I show that, allowing firms to choose contract structure endogenously, the resulting equilibrium path features staggered contracts.

Keywords: Dynamic competition; Exclusion; Staggered contracts (search for similar items in EconPapers)
JEL-codes: L12 L41 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
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Citations: View citations in EconPapers (2)

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Working Paper: Staggered Contracts, Market Power and Welfare (2014)
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