Working Paper: CEPR ID: DP4902
Authors: Chiara Fumagalli; Massimo Motta; Lars Persson
Abstract: We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent?s bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer?s acceptance than in the case where entry can occur only by installing new capacity. Third, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas de novo entry would be socially optimal, and (ii) it may deter entry altogether. Finally, we show that when exclusive deals include a commitment on future prices they will increase welfare.
Keywords: Antitrust; Entry Deterrence; Exclusive Dealing; Mergers
JEL Codes: K21; L10; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Exclusive deals (L14) | improved bargaining position in merger negotiations (G34) |
| Exclusive deals (L14) | buyer acceptance facilitation (L14) |
| Exclusive dealing (L14) | reduced welfare (I38) |
| Exclusive deals with future price commitments (L14) | increased welfare (I38) |