Exclusive contracts and market dominance

Abstract

We propose a new theory of exclusive dealing. The theory is based on the assumption that a dominant firm has a competitive advantage over its rivals, and that the buyers' willingness to pay for the product is private information. In this setting, we show that the dominant firm can impose contractual restrictions on buyers without having to compensate them. This implies that exclusive dealing contracts can be both profitable and anticompetitive. We discuss the general implications of the theory for competition policy and illustrate by example how it applies to real world antitrust cases. Joint with Giacomo Calzolari (University of Bologna).