Exclusive Dealing Contracts by Distributors



The existing literature about exclusive dealing contracts has focused on cases where an incumbent manufacturer o¤ers exclusive contracts to deter an entry. In contrast, we consider the case where an incumbent distributor offers exclusive dealing contracts to deter an entry. Exclusive dealing contracts by a distributor are less effective. We will show that the outcome of such contracts is quite different from the outcomes in the traditional literature. If the number of manufacturers is sufficiently high, it is impossible to exclude an efficient entry. Furthermore, if we allow two-part tariff contracts, the entrant distributor can enter the market for any number of manufacturers.