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Do exclusivity arrangements harm consumers?

Author

Listed:
  • Jihui Chen

    (Illinois State University)

  • Qiang Fu

    (National University of Singapore)

Abstract

This paper explores the ramifications of exclusivity arrangements, e.g., iPhone’s partnership with wireless carriers, for market competition and consumer welfare. Two firms compete in a primary good market, and a monopolistic firm offers a value-adding good. The primary good can be consumed alone, while the value-adding good must be consumed with the primary good. The monopolistic firm forms an exclusivity partnership with one of the primary good providers. Buyers are able to consume the value-adding good only if they patronize the monopolistic firm’s exclusive partner. This practice allows the monopolistic firm to extract surplus from the primary good market. Surprisingly, consumers benefit from the exclusivity arrangement. However, overall social welfare declines, despite improvements to consumer welfare.

Suggested Citation

  • Jihui Chen & Qiang Fu, 2017. "Do exclusivity arrangements harm consumers?," Journal of Regulatory Economics, Springer, vol. 51(3), pages 311-339, June.
    • Handle: RePEc:kap:regeco:v:51:y:2017:i:3:d:10.1007_s11149-017-9325-y
    DOI: 10.1007/s11149-017-9325-y
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    More about this item

    Keywords

    Exclusivity; Consumer welfare; Market efficiency; Hotelling; Two-part pricing;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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