1 Department of Innovation and Organizational Economics, Copenhagen Business School2 Università Luigi Bocconi3 Universitat Pompeu Fabra
Investment Promotion May Facilitate Inefficient Foreclosure
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.
Journal of Industrial Economics, 2012, Vol 60, Issue 4, p. 599-608