Working Paper: CEPR ID: DP10095
Authors: Lus Cabral
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
JEL Codes: L12; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Staggered contracts (D86) | decreased competition (L49) |
| decreased competition (L49) | higher prices for buyers (D49) |
| Staggered contracts (D86) | higher prices for buyers (D49) |
| Staggered contracts (D86) | lower expected value for entrants (D44) |
| lower expected value for entrants (D44) | barriers to entry (D43) |
| Staggered contracts (D86) | barriers to entry (D43) |
| Staggered contracts (D86) | market power dynamics (L11) |
| inefficient firm can foreclose a more efficient one under staggered contracts (L21) | exacerbation of market power dynamics (D49) |