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Exclusive Dealing: The Interaction between Foreclosure and Investment Promotion

Chiara Fumagalli (), Massimo Motta () and Thomas Rønde
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Thomas Rønde: Copenhagen Business School and CEPR

No 2009.120, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.

Keywords: Monopolization Practices; Vertical Agreements (search for similar items in EconPapers)
JEL-codes: L12 L40 L42 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-com
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