Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure

Chiara Fumagalli, Massimo Motta, Thomas Rønde

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    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.
    Original languageEnglish
    JournalJournal of Industrial Economics
    Volume60
    Issue number4
    Pages (from-to)599-608
    ISSN0022-1821
    DOIs
    Publication statusPublished - Dec 2012

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