Journal
INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION
Volume 26, Issue 1, Pages 227-246Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ijindorg.2006.11.004
Keywords
exclusive contracts; foreclosure; naked exclusion; vertical restraints
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The existing literature on exclusive dealing is extended to take into account that buyers signing exclusive deals are typically competing firms that are differentiated from the perspective of their customers. We show, provided such downstream firms are not too differentiated or provided upstream firms can compete in two-part tariffs, exclusive dealing forecloses entry to a more efficient rival. An established upstream firm and competing downstream firms raise their joint profit by signing exclusive deals to protect the industry from upstream competition. Naked exclusion arises despite the Chicago School logic that buyers only sign contracts that make themselves (jointly) better off. (C) 2006 Elsevier B.V. All rights reserved.
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