Exclusive dealing and vertical integration in interlocking relationships

Volker Nocke, Patrick Rey

We develop a model of interlocking bilateral relationships between upstream firms (manufacturers)that produce differentiated goods and downstream firms (retailers) that compete imperfectly for consumers. Contract offers and acceptance decisions are private information to the contracting parties. We show that both exclusive dealing and vertical integration between a manufacturer and a retailer lead to vertical foreclosure, to the detriment of consumers and society. Finally, we show that firms have indeed an incentive to sign such contracts or to integrate vertically.

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Year of publication:	September 20, 2014
Authors:	Nocke, Volker ; Rey, Patrick
Publisher:	Mannheim : Universität Mannheim, Department of Economics
Subject:	vertical relations \| exclusive dealing \| vertical merger \| foreclosure \| bilateral contracting \| Vertikale Integration \| Vertical integration \| Vertriebsbindung \| Exclusive dealing \| Lieferantenmanagement \| Supplier relationship management \| Fusion \| Merger \| Wettbewerbsbeschränkung \| Restraints of competition \| Vertragstheorie \| Contract theory