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Journal of Industrial Economics

On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible

Scientific Article in English
Reference
Fumagalli, Chiara, Massimo Motta and Lars Persson (2009). “On the Anticompetitive Effect of Exclusive Dealing when Entry by Merger is Possible”. Journal of Industrial Economics 57(4), 785–811. doi.org/10.1111/j.1467-6451.2009.00401.x

Authors
Chiara Fumagalli, Massimo Motta, Lars Persson

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.