Exclusive Dealing and Market Foreclosure: Further Experimental Results

Posted by D. Daniel Sokol

Claudia M. Landeo, Yale University - Law School, University of Alberta - Department of Economics and Kathryn E. Spier, Harvard University - Law School have an interesting new paper on Exclusive Dealing and Market Foreclosure: Further Experimental Results.

ABSTRACT: This paper reports further experimental results on exclusive dealing contracts. We extend Landeo and Spier's (2009) work by studying Naked Exclusion in a strategic environment that involves a four-player, two-stage game. In addition to the roles of seller and buyers, our experimental environment includes the role of a potential entrant (a fourth passive player). Our findings are as follows. First, payoff endogeneity increases the likelihood of exclusion. Second, communication between the potential entrant and the buyers increases buyers' coordination on their preferred equilibrium (equilibrium with entry) and hence, reduces the likelihood of exclusion. Communication also induces more generous offers.