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How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?

Author

Listed:
  • Hiroshi Kitamura
  • Noriaki Matsushima
  • Misato Sato

Abstract

This study constructs a model for examining anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform the input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when socially efficient entry is allowed. Hence, the inefficient incumbent can deter socially efficient entry via exclusive supply contracts, even in the framework of the Chicago School argument where a single seller, a single buyer, and a single entrant exist.

Suggested Citation

  • Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2013. "How Does Downstream Firms' Efficiency Affect Exclusive Supply Agreements?," ISER Discussion Paper 0878, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:0878
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    References listed on IDEAS

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    Cited by:

    1. Amemiya Yuki & Kitamura Hiroshi & Oshiro Jun, 2014. "Market-Share Contracts with Vertical Externalities," Asian Journal of Law and Economics, De Gruyter, vol. 5(1-2), pages 1-15, December.
    2. Rey, Patrick & Jullien, Bruno & Saavedra, Claudia, 2014. "The Economics of Margin Squeeze," CEPR Discussion Papers 9905, C.E.P.R. Discussion Papers.
    3. Ke Liu & Xiaoxuan Meng, 2021. "Exclusive dealing when upstream displacement is possible," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 830-843, November.

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