Exclusive Quality

Research output: Working paperDiscussion paperOther research output

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Abstract

In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent’s inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent’s monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages36
Volume2008-20
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-20

Fingerprint

Incumbents
Retailers
Exclusivity
Retail
Monopoly
Payment
Bertrand competition
Exclusion
Differentiated products
Rent

Keywords

  • vertical differentiation
  • exclusive dealing
  • contracts
  • naked exclusion
  • monopolization

Cite this

Argenton, C. (2008). Exclusive Quality. (CentER Discussion Paper; Vol. 2008-20). Tilburg: Microeconomics.
Argenton, C. / Exclusive Quality. Tilburg : Microeconomics, 2008. (CentER Discussion Paper).
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keywords = "vertical differentiation, exclusive dealing, contracts, naked exclusion, monopolization",
author = "C. Argenton",
note = "Subsequently published in Journal of Industrial Economics, 2010 Pagination: 36",
year = "2008",
language = "English",
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series = "CentER Discussion Paper",
publisher = "Microeconomics",
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Argenton, C 2008 'Exclusive Quality' CentER Discussion Paper, vol. 2008-20, Microeconomics, Tilburg.

Exclusive Quality. / Argenton, C.

Tilburg : Microeconomics, 2008. (CentER Discussion Paper; Vol. 2008-20).

Research output: Working paperDiscussion paperOther research output

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T1 - Exclusive Quality

AU - Argenton, C.

N1 - Subsequently published in Journal of Industrial Economics, 2010 Pagination: 36

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N2 - In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent’s inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent’s monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.

AB - In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent’s inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent’s monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion.

KW - vertical differentiation

KW - exclusive dealing

KW - contracts

KW - naked exclusion

KW - monopolization

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PB - Microeconomics

CY - Tilburg

ER -

Argenton C. Exclusive Quality. Tilburg: Microeconomics. 2008. (CentER Discussion Paper).