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Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure
Author(s) -
Fumagalli Chiara,
Motta Massimo,
Rønde Thomas
Publication year - 2012
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12006
Subject(s) - investment (military) , foreclosure , sign (mathematics) , business , promotion (chess) , microeconomics , industrial organization , economics , finance , law , political science , mathematical analysis , mathematics , politics
This paper studies a model whereby exclusive dealing ( ED ) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED .