American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Exploiting Rivals' Strengths
American Economic Journal: Microeconomics
(pp. 77–104)
Abstract
We analyze oligopolistic competition in which firms use contracts contingent on what buyers purchase from their rivals. We present a new mechanism through which a dominant firm, by using these contracts, can gain more from exploiting its rivals than from foreclosing them. This exploitation is achieved by requiring buyers to source at least a certain share of their total requirements from the dominant firm, though less than 100 percent. By optimally designing these contracts, the dominant firm can earn as much as it would if it were to acquire the rivals' specific technological and marketing capabilities at no cost.Citation
Calzolari, Giacomo, and Vincenzo Denicolò. 2026. "Exploiting Rivals' Strengths." American Economic Journal: Microeconomics 18 (3): 77–104. DOI: 10.1257/mic.20240219Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- K21 Antitrust Law
- L14 Transactional Relationships; Contracts and Reputation; Networks
- M31 Marketing