Exclusive dealing and vertical integration in interlocking relationships

Nocke, Volker ; Rey, Patrick

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URL: https://madoc.bib.uni-mannheim.de/37050
URN: urn:nbn:de:bsz:180-madoc-370507
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: Working Paper Series
Volume: 14-22
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Nocke 2009-)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: L13 , L42 , D43,
Keywords (English): vertical relations , exclusive dealing , vertical merger , foreclosure , bilateral contracting
Abstract: We develop a model of interlocking bilateral relationships between upstream firms (manufacturers)that produce differentiated goods and downstream firms (retailers) that compete imperfectly for consumers. Contract offers and acceptance decisions are private information to the contracting parties. We show that both exclusive dealing and vertical integration between a manufacturer and a retailer lead to vertical foreclosure, to the detriment of consumers and society. Finally, we show that firms have indeed an incentive to sign such contracts or to integrate vertically.

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