ON THE ANTICOMPETITIVE EFFECT OF EXCLUSIVE DEALING WHEN ENTRY BY MERGER IS POSSIBLE

Authors


  • *This paper is a substantially revised version of our working paper, ‘Exclusive Dealing, Entry and Mergers,’ CEPR DP No. 4902 and CSEF WP No. 153. We are very grateful to Hans Carlsson, Joe Farrell, Walter Garcia Fontes, Susana Iranzo, Doh-Shin Jeon, Chris Snyder, David Spector, Lucy White and especially to Pierre Regibeau and Patrick Rey for insightful discussions. We also thank seminar participants at European University Institute, Università di Verona, Università Bocconi, Università di Bologna, Università di Salerno, Colegi de Economia (Barcelona), Toulouse (Conference en l'honneur de Jean-Jacques Laffont), Dartmouth College, University of Züurich, Kyoto University, SNEE European Integration Conference in Möolle, 2006 Conference on Competition and Regulation (Corfu), First Conference on the Research Network on Innovation and Competition Policy (ZEW Mannheim), WSB Social Science Research Center (Berlin) and 2007 European Summer Symposium in Economic Theory (Gerzensee). Chiara Fumagalli acknowledges Università Bocconi (Ricerche di Base) and MIUR (PRIN 2005) for financial support. Lars Persson acknowledges Tom Hedelius' and Jan Wallander's Research Foundation for financial support.

Abstract

We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive dealing can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance of exclusivity. Third, despite allowing the more efficient technology to find its way into the industry, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal and (ii) it may deter entry altogether.

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