- EXCLUSIVE DEALING CLAUSES FACILITATE ENTRY

Martin Peitz and Paolo Garella

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: Firms willing to enter a market with a new product often face the problem that the market does notknow its quality. Selling through a retailer might avoid excessive entry costs by renting thereputation of an incumbent. The incumbent can apply excusive dealing clauses to his retailer. Weshow that the incumbent enforces the clause only againts low quality entrants and that exlusivedealing clauses lead to a more fragmented industry and improve welfare. However, if theincumbent can undertake e.g. brand differentiating investments at the retailer (which are welfareenhancing under perfect information), the overall effect of exlusive dealing clauses may be welfarereducing under asymmetric information.

Keywords: Retailing; vertical restraints; market entry (search for similar items in EconPapers)
Pages: 35 pages
Date: 1999-10
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1999-17

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