Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure

Chiara Fumagalli, Massimo Motta, Thomas Rønde

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.
    This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.
    LanguageEnglish
    JournalJournal of Industrial Economics
    Volume60
    Issue number4
    Pages599-608
    ISSN0022-1821
    DOIs
    StatePublished - Dec 2012

    Cite this

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    title = "Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure",
    abstract = "This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.",
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    Exclusive Dealing : Investment Promotion May Facilitate Inefficient Foreclosure. / Fumagalli, Chiara; Motta, Massimo; Rønde, Thomas.

    In: Journal of Industrial Economics, Vol. 60, No. 4, 12.2012, p. 599-608.

    Research output: Contribution to journalJournal articleResearchpeer-review

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    AB - This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.

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