Exclusionary contracts, entry, and communication

Heiko Gerlach

No D/697, IESE Research Papers from IESE Business School

Abstract: I examine the incentives of firms to communicate entry into an industry where the incumbent writes exclusionary, long-term contracts with consumers. The entrant's information provision affects the optimal contract proposal by the incumbent and leads to communication incentives that are highly non-linear in the size of the innovation. Entry with small and medium-to-large innovations is announced whereas small-to-medium and large innovations are not communicated. It is demonstrated that this equilibrium communication behavior maximizes ex ante total welfare by reducing the anti-competitive impact of excessively exclusive contracts. By contrast, consumers always prefer more communication and the incumbent's equilibrium contract maximizes ex ante consumer surplus.

Keywords: Long-term contracts; communication; contractual switching costs; exclusionary conduct (search for similar items in EconPapers)
JEL-codes: D86 L12 L41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-05-15
New Economics Papers: this item is included in nep-bec, nep-com, nep-mic and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0697

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