The Competitive Effect of Exclusive Dealing in the Presence of Renegotiation Breakdown

The Competitive Effect of Exclusive Dealing in the Presence of Renegotiation Breakdown This paper analyzes the seller’s incentive to write exclusive contracts with buyers (“exclusive dealing”) and the welfare implications of such contracts in the presence of renegotiation breakdown whereby exclusive dealing is able to affect both the incumbent seller’s investment and a rival’s entry. The analysis shows that the probability of renegotiation breakdown plays a central role in determining the competitive effect of exclusive dealing. Exclusivity is likely to be anticompetitive for intermediate levels of renegotiation breakdown risk, while it is likely to be procompetitive for a very low breakdown risk under linear pricing (and for a very high breakdown risk under two-part tariffs). The result suggests that the competitive effect of exclusive dealing is decided by the interaction between investment promotion and foreclosure, which in turn depends on the probability of renegotiation breakdown and the pricing scheme that sellers can choose. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

The Competitive Effect of Exclusive Dealing in the Presence of Renegotiation Breakdown

Loading next page...
 
/lp/springer_journal/the-competitive-effect-of-exclusive-dealing-in-the-presence-of-SdG2FYs4C0
Publisher
Springer Journals
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-015-9451-6
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the seller’s incentive to write exclusive contracts with buyers (“exclusive dealing”) and the welfare implications of such contracts in the presence of renegotiation breakdown whereby exclusive dealing is able to affect both the incumbent seller’s investment and a rival’s entry. The analysis shows that the probability of renegotiation breakdown plays a central role in determining the competitive effect of exclusive dealing. Exclusivity is likely to be anticompetitive for intermediate levels of renegotiation breakdown risk, while it is likely to be procompetitive for a very low breakdown risk under linear pricing (and for a very high breakdown risk under two-part tariffs). The result suggests that the competitive effect of exclusive dealing is decided by the interaction between investment promotion and foreclosure, which in turn depends on the probability of renegotiation breakdown and the pricing scheme that sellers can choose.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Feb 13, 2015

References

  • Exclusive contracts foster relationship-specific investment
    Meza, D; Selvaggi, M

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off