Working Paper: CEPR ID: DP9545
Authors: Giacomo Calzolari; Vincenzo Denicol
Abstract: We develop a theory of exclusive dealing that rehabilitates pre-Chicago-school analyses. Our theory rests on two realistic assumptions: that firms are imperfectly informed about demand, and that a dominant firm has a competitive advantage over its rivals. Under those assumptions, exclusive contracts tend to be pro-competitive when the dominant firm's competitive advantage is small, but are anti-competitive when it is more pronounced. In this latter case, the dominant firm uses exclusivity clauses as a means to increase its market share and profit, without necessarily driving its rivals out of the market, or impeding their entry. We discuss the implications of these results for competition policy.
Keywords: dominant firm; exclusive dealing; nonlinear pricing
JEL Codes: D42; D82; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| small competitive advantage (D43) | pro-competitive effects of exclusive contracts (L14) |
| large competitive advantage (L19) | anti-competitive effects of exclusive contracts (L42) |
| exclusive contracts (L14) | higher prices and reduced variety for buyers (D49) |
| competitive advantage (L21) | effectiveness of exclusive contracts (L14) |