Defending home against giants: Exclusive dealing as a survival strategy for local firms

Hiroshi Kitamura, Noriaki Matsushima and Misato Sato

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: We consider exclusive contracts a survival strategy for a local incumbent manufacturer facing a multinational manufacturer's entry. Although both manufacturers prefer to trade with an efficient local distributor, trading with inefficient competitive distributors is acceptable only to the entrant, because of the entrant's efficiency. Hence, such competitive distributors can be an outside option for the entrant. As the entrant becomes efficient, the outside option works effectively, implying that the entry does not considerably benefit the efficient local distributor. Thus, the local manufacturer is more likely to sign an exclusive contract with the efficient distributor as the entrant becomes efficient.

Date: 2021-03, Revised 2021-10
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Journal Article: Defending Home against Giants: Exclusive Dealing as a Survival Strategy for Local Firms (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1122r

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