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Naked Exclusion and the Volatility of Innovation †

Naked Exclusion and the Volatility of Innovation † Abstract The analysis shows that the volatility of a potential entrant's innovation is an important parameter that shapes an incumbent supplier's exclusivity strategy. Higher volatility encourages the incumbent supplier to adopt an accommodation strategy rather than a pure exclusion strategy. When volatility is above a threshold, the incumbent always chooses accommodation regardless of the expected size of the entrant's innovation. And since an accommodation strategy merely redistributes surplus without blocking efficient entry, it may not warrant a prohibition of exclusivity contracts by the antitrust authorities. (JEL D86, K21, L13, L14, L42, O31 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Naked Exclusion and the Volatility of Innovation †

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Publisher
American Economic Association
Copyright
Copyright © 2016 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.20150072
Publisher site
See Article on Publisher Site

Abstract

Abstract The analysis shows that the volatility of a potential entrant's innovation is an important parameter that shapes an incumbent supplier's exclusivity strategy. Higher volatility encourages the incumbent supplier to adopt an accommodation strategy rather than a pure exclusion strategy. When volatility is above a threshold, the incumbent always chooses accommodation regardless of the expected size of the entrant's innovation. And since an accommodation strategy merely redistributes surplus without blocking efficient entry, it may not warrant a prohibition of exclusivity contracts by the antitrust authorities. (JEL D86, K21, L13, L14, L42, O31 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Aug 1, 2016

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