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- Exclusive Dealing Clauses Facilitate Entry

Author

Listed:
  • Martin Peitz

    (Universidad de Alicante)

  • Paolo G. Garella

    (University of Bologna)

Abstract

Firms willing to enter a market with a new product often face the problem that the market does notknow its quality. Selling through a retailer might avoid excessive entry costs by renting thereputation of an incumbent. The incumbent can apply excusive dealing clauses to his retailer. Weshow that the incumbent enforces the clause only againts low quality entrants and that exlusivedealing clauses lead to a more fragmented industry and improve welfare. However, if theincumbent can undertake e.g. brand differentiating investments at the retailer (which are welfareenhancing under perfect information), the overall effect of exlusive dealing clauses may be welfarereducing under asymmetric information.

Suggested Citation

  • Martin Peitz & Paolo G. Garella, 1999. "- Exclusive Dealing Clauses Facilitate Entry," Working Papers. Serie AD 1999-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1999-17
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1999-17.pdf
    File Function: Fisrt version / Primera version, 1999
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    References listed on IDEAS

    as
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