ON THE ANTICOMPETITIVE EFFECT OF EXCLUSIVE DEALING WHEN ENTRY BY MERGER IS POSSIBLE* |
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| Authors: | CHIARA FUMAGALLI MASSIMO MOTTA LARS PERSSON |
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| Institution: | 1. Università Bocconi, Department of Economics, Via Rontgen, 1, 20136 Milano, Italy, CSEF and CEPR.e‐mail:chiara.fumagalli@unibocconi.it;2. Università di Bologna, Department of Economics, Piazza Scaravilli 2, I‐40126, Bologna.e‐mail:massimo.motta@unibo.it;3. IFN (The Research Institute of Industrial Economics), Box 55665, 102 15 Stockholm, Sweden.e‐mail:Lars.Persson@ifn.se |
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| Abstract: | We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive dealing can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance of exclusivity. Third, despite allowing the more efficient technology to find its way into the industry, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal and (ii) it may deter entry altogether. |
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