Exclusive quality

Research output: Contribution to journalArticleScientificpeer-review

10 Citations (Scopus)

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 high-quality rival. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. Due to the resulting competitive pressure, a retailer who considers rejecting the exclusivity contract expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can always offer high enough an upfront payment to induce all retailers to sign the contract and achieve exclusion. This is true under linear pricing for intermediate levels of entry costs, and with two-part tariffs even in the absence of entry costs.
Original languageEnglish
Pages (from-to)690-716
JournalJournal of Industrial Economics
Volume58
Issue number3
Publication statusPublished - 2010

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