WHEN DOES EXCLUSIVE DEALING INTENSIFY COMPETITION FOR DISTRIBUTION? COMMENT ON KLEIN AND MURPHY

In a recent article in this Journal, Benjamin Klein and Kevin M. Murphy argue that exclusive dealing contracts are procompetitive because exclusivity intensifies manufacturer competition for distribution and thereby decreases wholesale prices. This is an important procompetitive effect of exclusive...

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Bibliographic Details
Published inAntitrust law journal Vol. 77; no. 1; pp. 205 - 211
Main Author Zenger, Hans
Format Journal Article
LanguageEnglish
Published Chicago American Bar Association 22.06.2010
Subjects
Advantages
Antitrust
Asymmetry
Brands
COMMENT
Competition
Competition (Economics)
Consumer preferences
Consumer prices
Consumers
Costs
Economic competition
Equilibrium
Exclusive dealing agreements
Foreclosure
Klein, Benjamin
Laws, regulations and rules
Liquor
Manufacturers
Market competition
Market prices
Market share
Market shares
Murphy, Kevin M
Preferences
Prices
Product differentiation
Retail industry
Retail stores
Sherman Antitrust Act 1890-US
Wholesale prices
United States > US
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Summary:In a recent article in this Journal, Benjamin Klein and Kevin M. Murphy argue that exclusive dealing contracts are procompetitive because exclusivity intensifies manufacturer competition for distribution and thereby decreases wholesale prices. This is an important procompetitive effect of exclusive dealing, which explains why the practice can benefit consumers. However, it is important to understand when this effect is important, and when it is not. For that purpose, this note extends the Klein and Murphy model to allow for asymmetric firms, so one firm can be dominant in the market. It is shown that the existence and strength of procompetitive benefits depends on the degree of competition among manufacturers. The larger the market power of the producer that engages in exclusive dealing, the smaller the effect outlined by Klein and Murphy. Hence, the efficiency-enhancing gains from exclusive dealing are least significant precisely when the danger of anticompetitive foreclosure is largest.
ISSN:0003-6056
2326-9774