DP15520 Exploiting rivals' strengths

Author(s): Giacomo Calzolari, Vincenzo Denicolò
Publication Date: December 2020
Keyword(s): Exclusive dealing, Exploitation, foreclosure, Market-share discounts
JEL(s): D42, D82, L42
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15520

Contracts that reference rivals' volumes (RRV contracts), such as exclusive dealing or market-share rebates, have been a long-standing concern in antitrust because of their possible exclusionary effects. We show, however, that it is more profitable to use these contracts to exploit rivals rather than to foreclose them. By optimally designing RRV contracts, a dominant firm may, indeed, obtain higher profits than if it were an unchallenged monopolist. In the most favorable cases, it can earn as much as if it could eliminate the competition and acquire the rivals' specific technological capabilities free of charge.