American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Naked Exclusion and the Volatility of Innovation
American Economic Journal: Microeconomics
vol. 8,
no. 3, August 2016
(pp. 39–50)
Abstract
The analysis shows that the volatility of a potential entrant's innovation is an important parameter that shapes an incumbent supplier's exclusivity strategy. Higher volatility encourages the incumbent supplier to adopt an accommodation strategy rather than a pure exclusion strategy. When volatility is above a threshold, the incumbent always chooses accommodation regardless of the expected size of the entrant's innovation. And since an accommodation strategy merely redistributes surplus without blocking efficient entry, it may not warrant a prohibition of exclusivity contracts by the antitrust authorities.Citation
Stefanadis, Christodoulos. 2016. "Naked Exclusion and the Volatility of Innovation." American Economic Journal: Microeconomics, 8 (3): 39–50. DOI: 10.1257/mic.20150072Additional Materials
JEL Classification
- D86 Economics of Contract: Theory
- K21 Antitrust Law
- L13 Oligopoly and Other Imperfect Markets
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L42 Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- O31 Innovation and Invention: Processes and Incentives
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