The Impacting Mechanism Of Exclusive Dealing On Upstream Entry

Since the beginning of the21st century, with the rapid development of China’s market economy and the level of competition continues to intensify, the manufacturers that have market power will impose a series of longitudinal control means to downstream manufacturers, exclusive dealing is one of the methods. Exclusive dealing, refers to that the upstream productor or the manufacturer has a dominant market position by downstream retailers or wholesalers to sign an exclusive contract, and prohibit the downstream buyers to purchase or operate its competitive manufacturer’s product, so as to squeeze out the competition of rivals or to prevent potential competitors entering the upstream market. As competition intensifies, the exclusive dealing practices in all sectors of trade. It limits free competition, blocks competitors, therefore,"the People’s Republic of China anti-monopoly law", promulgated in2008, explicitly prohibits exclusive dealing behavior, which also led to discussion and thinking of scholars on anti-competitive effects of such behavior and the occurrence of conditions. Under what conditions exclusive dealing more likely to occur? And whether the exclusive dealing’s occurrence have some kind of inner link with downstream market competition? If the incumbent can not be implemented this strategy behavior, the occurrence of entry in the upstream market is also bound by the degree of influence of downstream competition in the downstream market? Combined with these questions, I found the inspiration of the writing of this article’s core content.This article drew on the previous theoretical framework, and constructed "upstream monopoly and downstream duopoly" and "exclusive dealing case," two entry models from the downstream market competition level point of view. In both cases, I discussed several factors on the entry of upstream vendors, such as the upstream market fixed cost of entry, the incumbent monopolist’s marginal cost, and focused on the relationships between the level of downstream market competition and the potential profits of competing vendors, as well as effects on the exclusive contract provided by the incumbent.And then I found the conditions of exclusion and entry equilibriums, and put forward a certain level of policy recommendations for the anti-monopoly mechanism: As the more competitive downstream market there is, the greater the likelihood of the use for exclusive dealing, should implement the relevant laws and regulations to avoid exclusive trading under the downstream of a highly competitive industry, brought vicious competition, affect the social welfare of final consumers; when the competition of the downstream market is not intense, even if the incumbent can provide exclusive contract, it will not prevent the entry of potential competitors, and there always exists the case that the downstream buyer select and transact with the entrant, thus makes him cover fixed costs and achieves the purpose of entering the market.