Tuesday, May 26, 2009

Exclusive Dealing, Entry, and Mergers

Posted by D. Daniel Sokol

Chiara Fumagalli (Bocconi - Economics) Massimo Motta (Bologna - Economics) Thomas Roende (Copenhagen - Economics) theorize about Exclusive Dealing, Entry, and Mergers.

ABSTRACT: This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.


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