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Discussion Paper Details

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Title: Exclusive Dealing and Vertical Integration in Interlocking Relationships

Author(s): Volker Nocke and Patrick Rey

Publication Date: September 2014

Keyword(s): bilateral contracting, exclusive dealing, foreclosure, vertical merger and vertical relations

Programme Area(s): Industrial Organization

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

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Bibliographic Reference

Nocke, V and Rey, P. 2014. 'Exclusive Dealing and Vertical Integration in Interlocking Relationships'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10176