Pre-commitment to an Exclusive Contract under Partial Regulation

This article examines the welfare implications of an incumbent's pre-commitment to an exclusive contract in a partially regulated environment. It shows that the contract offered to customers in a competitive market makes the first-best allocation infeasible in the partially regulated environment. However, the contract can have a welfare-enhancing property through the exclusion of inefficient entry or cream skimming in the competitive market, especially when the regulated price ceiling is low and the incumbent's technology is characterized by a large proportion of common cost in total cost.