Jan Zapal, CERGE-EI

"Naked Exclusion with Heterogeneous Buyers"

Abstract

This paper studies a model in which an incumbent firm tries to prevent competitor's entry by signing exclusionary contracts with buyers. The existing literature, focusing on the version of this model with homogeneous buyers, has shown that in equilibrium either no buyer signs an exclusionary contract, and thus entry happens, or a sufficient number of buyers signs, and thus exclusion happens. Moreover, the incumbent firm's ability to approach buyers sequentially rather than simultaneously facilitates its ability to prevent entry. This paper shows that similar holds when buyers are heterogeneous, but none of them is a veto buyer (in that him signing is necessary for exclusion). In the presence of veto buyers, buyers might sign exclusionary contracts even though entry ultimately happens, and the incumbent firm approaching members sequentially might be both pro-competitive and Pareto-improving.

(Joint with Ying Chen, Johns Hopkins University)

Contact person: Andrei Matveenko