Exploiting rivals’strengths

Department of Economics & Decision Sciences

Speaker : Giacomo Calzolari

Professor at European University Institute

Videoconference

Abstract :

Contracts that reference rivals’ volumes (RRV contracts), such as exclusive dealing or market-share rebates, have been a long-standing concern in antitrust because of their possible exclusionary effects. We show, however, that dominant firms may prefer to use these contracts to exploit rivals rather than to foreclose them. By designing RRV contracts so that rivals stay active but are marginalized, a dominant firm may earn as much as if it could eliminate the competition and acquire the rivals' specific technological capabilities free of charge. Besides being more profitable, these partially exclusionary strategies have also more benign competitive effects than fully exclusionary ones.