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Naked Exclusion and the Volatility of Innovation

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  • Christodoulos Stefanadis

Abstract

The analysis shows that the volatility of a potential entrant's innovation is an important parameter that shapes an incumbent supplier's exclusivity strategy. Higher volatility encourages the incumbent supplier to adopt an accommodation strategy rather than a pure exclusion strategy. When volatility is above a threshold, the incumbent always chooses accommodation regardless of the expected size of the entrant's innovation. And since an accommodation strategy merely redistributes surplus without blocking efficient entry, it may not warrant a prohibition of exclusivity contracts by the antitrust authorities.

Suggested Citation

  • Christodoulos Stefanadis, 2016. "Naked Exclusion and the Volatility of Innovation," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 39-50, August.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:3:p:39-50
    Note: DOI: 10.1257/mic.20150072
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    References listed on IDEAS

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    5. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
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    Citations

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    Cited by:

    1. Jay Pil Choi & Christodoulos Stefanadis, 2018. "Sequential innovation, naked exclusion, and upfront lump-sum payments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(4), pages 891-915, June.
    2. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    3. Jay Pil Choi & Christodoulos Stefanadis, 2022. "Network Externalities, Dominant Value Margins, And Equilibrium Uniqueness," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1805-1827, November.
    4. Jong‐Hee Hahn & Sang‐Hyun Kim & So Hye Yoon, 2023. "Tying in two‐sided markets with heterogeneous advertising revenues and negative pricing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(4), pages 757-787, October.

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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