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Lecture 10: Exclusive dealing (Partial exclusion (Invalidate Chicago…
Lecture 10: Exclusive dealing
Introduction
exclusive dealing
: contract between upstream and downstream firms for exclusive supply (
mostly upstream imposed on downstream
)
advantages of downstream firms
demand a compensation
anti-competitive
efficiency enhancing
Chicago School Critique
Model setup (p.7)
Timing of the game
Post entry competition
Entry decision
without exclusive dealing (ED)
with ED
Key messenger: if an ED contract is accepted => there must be efficiency gain => cannot be anti- competitive
Partial exclusion
Invalidate Chicago School Critique
vertical integration between I and B => socially insufficient entry
an exclusive dealing contracts can achieve the
same outcome
as vertical integration => anti- competitive
Modified model (p.18)
Efficient entry
Post- entry competition (p.22)
Vertical integration
outsourcing
inefficiency (go to consult)
Achieve benchmark outcome using ED contract (p.27)
contract breach (p.28)
insufficient entry => anti- competitive
B's acceptance (p.31)
I's offer (p.32)
Remarks (p.34)
Full exclusion
C(E) is publicly known
Economies of scale
Non- discriminatory compensations
Buyer miscoordination (p.38) =>
gives I power to build an entry barrier
=> lead to
full exclusion
Discriminatory offer (different offers to different buyers)
Divide and conquer (p.42) : more costly than buyer miscoordination