Naked Exclusion with Private Offers

36 Pages Posted: 7 May 2014 Last revised: 19 Feb 2016

See all articles by Jeanine Miklós-Thal

Jeanine Miklós-Thal

University of Rochester - Simon Business School

Greg Shaffer

University of Rochester - Simon Business School

Date Written: February 8, 2016

Abstract

We consider a seller’s ability to deter potential entrants by offering exclusive contracts to its downstream buyers. Rasmusen, Ramseyer, and Wiley (1991) showed that this can be a pro…fitable strategy if there is a coordination failure on the part of the buyers. Segal and Whinston (2000) showed that the seller need not rely on a coordination failure if it can make discriminatory “divide-and-conquer” offers. These papers and the literature that followed has assumed that all offers are public. We show that if buyers cannot observe each other’'s offers and have passive or wary out-of-equilibrium beliefs, the divide-and-conquer exclusion strategy fails. Equilibria in which the incumbent obtains exclusion for free due to a coordination failure on the part of the buyers, on the other hand, exist for all out-of-equilibrium beliefs.

Keywords: exclusive dealing, divide-and-conquer offers, unobservable contracts, entry deterence

JEL Classification: L13, L41, L42

Suggested Citation

Miklós-Thal, Jeanine and Shaffer, Greg, Naked Exclusion with Private Offers (February 8, 2016). Simon School Working Paper No. FR 14-12, Available at SSRN: https://ssrn.com/abstract=2433242 or http://dx.doi.org/10.2139/ssrn.2433242

Jeanine Miklós-Thal (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Greg Shaffer

University of Rochester - Simon Business School ( email )

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