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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 )
American Economic Journal: Microeconomics – American Economic Association
Published: Aug 1, 2016
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