Post by Sapphire Capital on Jul 12, 2008 20:49:17 GMT 4
Exclusive Quality
CÉDRIC ARGENTON
Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration
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February 2008
CentER Discussion Paper No. 2008-20
TILEC Discussion Paper No. 2008-007
Abstract:
In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1095674_code629430.pdf?abstractid=1095674&mirid=3
CÉDRIC ARGENTON
Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration
--------------------------------------------------------------------------------
February 2008
CentER Discussion Paper No. 2008-20
TILEC Discussion Paper No. 2008-007
Abstract:
In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1095674_code629430.pdf?abstractid=1095674&mirid=3