The demand-boost theory of exclusive dealing

This article unifies various approaches to the analysis of exclusive dealing that so far have been regarded as distinct. The common element of these approaches is that firms depart from efficient pricing, raising marginal prices above marginal costs. We show that with distorted prices, exclusive dealing can be directly profitable and anticompetitive provided that the dominant firm enjoys a competitive advantage over rivals. The dominant firm gains directly, rather than in the future, or in adjacent markets, thanks to the boost in demand it enjoys when buyers sign exclusive contracts. We discuss the implication of the theory for antitrust policy.     

Differentiated Duopoly with Asymmetric Costs

In this paper, we compare Bertrand and Cournot equilibria in a differentiated duopoly with linear demand and cost functions. We extend the Singh and Vives (1984) model by allowing for a wider range of cost and demand (product quality) asymmetry between firms. Focusing on the case of substitute goods, we show that both the efficient firm's profits and industry profits are higher under Bertrand competition when asymmetry is strong and/or products are weakly differentiated. Therefore, Singh and Vives's ranking of profits between the two modes of competition is reversed in a sizeable portion of the relevant parameter space. Contrary to the standard result with symmetric firms, we also show that product differentiation can reduce both the efficient firm's and industry profits, implying that a local incentive towards less differentiation may arise.