Exclusive Dealing: The Interaction between Foreclosure and Investment Promotion
Chiara Fumagalli, Massimo Motta, Thomas Rønde
L12, L40, L42
Monopolization Practices, Vertical Agreements
Economy and Society
This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract
that forecloses a more efficient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defence for ED.