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Exclusive Dealing and Vertical Integration in Interlocking Relationships

Author

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  • Nocke, Volker
  • Rey, Patrick
Abstract
We develop a model of interlocking bilateral relationships between upstream manufacturers that produce differentiated goods and downstream 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, at the detriment of consumers and society. Finally, we show that firms have indeed an incentive to sign such contracts or to integrate vertically.

Suggested Citation

  • Nocke, Volker & Rey, Patrick, 2014. "Exclusive Dealing and Vertical Integration in Interlocking Relationships," TSE Working Papers 14-515, Toulouse School of Economics (TSE), revised Jun 2018.
    • Handle: RePEc:tse:wpaper:28372
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    References listed on IDEAS

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    Cited by:

    1. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2019. "Vertical Integration under an Optimal Tax Policy: a Consumer Surplus Detrimental Result," ETA: Economic Theory and Applications 294195, Fondazione Eni Enrico Mattei (FEEM).
    2. Sai Bravo & Carole Haritchabalet, 2021. "Certification of low-carbon hydrogen in the transport market," Working Papers hal-03371277, HAL.
    3. Emmanuel Petrakis & Panagiotis Skartados, 2022. "Vertical Opportunism, Bargaining, and Share-Based Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(4), pages 549-565, June.
    4. Jeon, Doh-Shin & Lefouili, Yassine, 2020. "Decentralizing Cooperation through Upstream Bilateral Agreements," CEPR Discussion Papers 14974, C.E.P.R. Discussion Papers.
    5. Giacomo Calzolari & Vincenzo Denicolò & Piercarlo Zanchettin, 2020. "The demand‐boost theory of exclusive dealing," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 713-738, September.
    6. Allain, Marie-Laure & Avignon, Rémi & Chambolle, Claire, 2020. "Purchasing alliances and product variety," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    7. Kiho Yoon, 2020. "Upstream competition, exclusive content provision, and vertical integration in media markets," Discussion Paper Series 2009, Institute of Economic Research, Korea University.
    8. Michele Bisceglia, 2023. "Vertical Contract Disclosure in Three‐Tier Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 1-46, March.
    9. Javier D. Donna & Pedro Pereira, 2024. "Structural Presumptions for Non-horizontal Mergers in the 2023 Merger Guidelines: A Primer and a Path Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 303-345, August.
    10. Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    11. Doh‐Shin Jeon & Yassine Lefouili, 2018. "Cross‐licensing and competition," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 656-671, September.
    12. Sai Bravo & Carole Haritchabalet, 2021. "Certification of low-carbon hydrogen in the transport market," Working papers of Transitions Energétiques et Environnementales (TREE) hal-03371277, HAL.
    13. Pagnozzi, Marco & Piccolo, Salvatore & Reisinger, Markus, 2021. "Vertical contracting with endogenous market structure," Journal of Economic Theory, Elsevier, vol. 196(C).
    14. Chambolle, Claire & Christin, Clémence & Molina, Hugo, 2023. "Buyer power and exclusion: A progress report," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    15. Markus Reisinger & Emanuele Tarantino, 2015. "Vertical integration, foreclosure, and productive efficiency," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 461-479, September.
    16. Matthias Hunold & Shiva Shekhar, 2022. "Supply Chain Innovations and Partial Ownership," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 109-145, February.
    17. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.
    18. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2020. "Subsidy policies and vertical integration in times of crisis: Can two virtues produce an evil?," MPRA Paper 104413, University Library of Munich, Germany.
    19. Skartados, Panagiotis, 2022. "Disclosure regime of contract terms and bargaining in vertical markets," UC3M Working papers. Economics 34144, Universidad Carlos III de Madrid. Departamento de Economía.
    20. Liu, Xingyi, 2016. "Vertical integration and innovation," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 88-120.
    21. Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2023. "Vertical integration under optimal taxation: A consumer surplus detrimental result," Economics Letters, Elsevier, vol. 222(C).
    22. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.

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    More about this item

    Keywords

    vertical relations; exclusive dealing; vertical merger; foreclosure; bilateral contracting;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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