Exclusive dealing and market foreclosure: further experimental results: comment

Ansgar Wohlschlegel

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    Naked exclusion is one of the most influential post-Chicago theories of exclusive dealing. It relies on scale effects requiring an entrant to cover at least a certain percentage of the market in order to break even. Under this assumption, Segal and Whinston (2000) show that an incumbent can gain by offering exclusive-dealing contracts even if discriminatory offers are banned: If the incumbent offers the buyers some share of his profit from monopolizing the market, but threatens to charge monopoly prices from a rejecting buyer, the buyers’ simultaneous decision of whether to accept the exclusive-dealing contract is equivalent to a coordination game. Hence, there is a Nash equilibrium in which all buyers accept the exclusivedealing contract, although all buyers would be better off if all of them rejected the contract. The literature on naked exclusion has so far almost exclusively dealt with the strategic interaction between buyers. More specifically, the chief concern in the case with only nondiscriminatory offers available was whether buyers will be able to coordinate on the entry equilibrium. Landeo and Spier (2009, henceforth LS09) make an important contribution to this literature by experimentally testing buyers’ equilibrium selection behaviour. They analyze a reduced version of the game that focuses on the buyers’ coordination game, in some treatments allowing for endogenous offers made by a third player, the incumbent seller. Intuitively, buyers seek to avoid being the only one who rejects the offer, and recognize that their decisions will also influence the incumbent seller’s payoff. Hence, the buyers’ decisions may be influenced by focal points and social preferences.
    Original languageEnglish
    Pages (from-to)176-180
    Number of pages5
    JournalJournal of Institutional and Theoretical Economics
    Issue number1
    Publication statusPublished - Mar 2012


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