Exclusive dealing with network effects
Doğanoğlu, Toker and Wright, Julian (2006) Exclusive dealing with network effects. [Working Paper / Technical Report] Sabanci University ID:SU_FASS_2006/0003
This paper explores the ability of an incumbent to use exclusive deals or introductory offers to dominate a market in the face of entry when network effects rather than scale economies are present. When consumers can only join one or other firm, the incumbent will make discriminatory o ers that are anticompetitive and ine cient. Allowing consumers to multihome, we find o ers that only require consumers to commit to purchase from the incumbent are not anticompetitive, while contracts which prevent consumers from also buying from the entrant in the future are anticompetitive and ine cient. The finding extends to two-sided markets, where the incumbent signs up "sellers" exclusively with attractive offers and exploits "buyers".
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