Exclusionary exclusive dealing

This dissertation focuses on exclusive dealing which is a contractual arrangement between an upstream firm (manufacturer) and a downstream firm (retailer) whereby the downstream firm agrees not to sell any of the upstream firm's competitors' products. Models of exclusive dealing in the economics literature fall into two broad classes: those that view exclusive dealing as being primarily a response to contractual problems, and those that view exclusive dealing as being primarily designed to exclude competitors from the market ("exclusionary exclusive dealing").; Previous models of exclusionary exclusive dealing have analyzed the case where two manufacturers attempt to force individual retailers into an exclusivity contract, e.g., Mathewson and Winter (1987). However, in models with only two manufacturers present, the individual retailer's alternative to dealing exclusively with the dominant manufacturer is to deal exclusively with the dominated manufacturer. By increasing the number of manufacturers, this dissertation eliminates this artificial symmetry of the choice confronting the retailer. In models with three manufacturers present, for example, the individual retailer's alternative to dealing exclusively with the dominant manufacturer is to deal non-exclusively with the two dominated manufacturers. One might expect that as the number of manufacturers increases, the incidence of exclusionary exclusive dealing would decrease.; The main finding of this dissertation is that increasing the number of manufacturers beyond two does not reduce the incidence of exclusivity by as much as expected. In a model where no price commitments by manufacturers are credible, it is shown that the incidence of exclusive dealing is decreasing in the number of manufacturers. However, in models where price commitments by manufacturers are credible, it is shown that for certain parameter values as the number of manufacturers increases from two to three, the incidence of exclusive dealing increases.; Two other contributions are made to the economics literature on exclusive dealing in this dissertation. First, it is shown that exclusionary contracts that lead to increases in the prices of all products can be welfare-enhancing. Second, the legalizing of exclusionary contracts can decrease the profits of the dominant manufacturer as it must respond to the dominated manufacturer's incentive to demand exclusivity.