Long-term contracts as barriers to entry with differentiated products

We study long-term contracts as barriers to entry, departing from earlier literature in three important ways. First, the incumbent firm is allowed a period of monopoly prior to the entrant’s arrival, a period that opens up greater possibilities for mutually attractive long-term contracts. Second, our model allows for product differentiation – a generalization that is shown to have significant implications for the design and profitability of long-term contacts. Finally, we consider long-term contracts that are not exclusive and show how such contracts can nevertheless contribute to the profitable partial foreclosure of entrants.