Exclusive Dealing and the Market Power of Buyers

Abstract

This paper examines the effects of exclusive dealing contracts offered by an incumbent distributor. The effectiveness of exclusive dealing contracts offered by distributors is quite differrent from those offered by incumbent manufacturers. The traditional literature has focused solely on exclusive dealing contracts made by incumbent manufacturers and has derived multiple equilibria within homogeneous price competition models. In contrast, this paper asserts that exclusive dealing contracts made by a distributor generate a unique equilibrium and that an efficient entrant must be excluded under the equilibrium as long as distributors have sufficient bargaining power.