Working Paper: CEPR ID: DP7240
Authors: Chiara Fumagalli; Massimo Motta; Thomas Rønde
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
JEL Codes: L12; L40; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exclusive dealing (L14) | investment promotion (O25) |
| exclusive dealing (L14) | foreclosure (G33) |
| investment promotion (O25) | signing of exclusive contracts (L14) |
| investment promotion (O25) | foreclosure (G33) |
| exclusive dealing (L14) | net welfare effects (D69) |