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| Author: | Argenton, C. |
| Title: | Exclusive quality |
| Journal: | Journal of Industrial Economics
2010 : SEP, VOL. 58:3, p. 690-716 |
| Index terms: | competition industrial concentration retail industry quality |
| Freeterms: | monopolistic competition |
| Language: | eng |
| Abstract: | In the case of vertically differentiated products, Bertrand competition at the retail level does not stop an incumbent upstream firm using exclusivity contracts to restrict the entry of a high-quality rival. Indeed, resulting from differentiation, the incumbent's inferior product is not eliminated upon entry. Due to the resulting competitive pressure, a retailer considering to reject the exclusivity contract anticipates to earn much less than the incumbent's monopoly rents. Hence, in equilibrium, the incumbent can always offer an upfront payment high enough to tempt all retailers signing the contract and achieving exclusion. This happens under linear pricing for intermediate entry cost levels, and with two-part tariffs even in the case of no entry costs. |
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