Exclusionary Vertical Contracts and Product Market Competition

This article considers whether a monopolist is able to deter more efficient entrants through contracting with buyers. In the antitrust literature, the Chicago School's stand is that such contracts cannot be anticompetitive; hence, vertical contracts should be accorded per se legal status. In a four-stage game with the following features: (i) the incumbent enjoys a first-mover advantage, (ii) the entrant must incur some sunk cost to enter the market, and (iii) entry is uncertain, I show that vertical contracts can be anticompetitive if there exists product-market competition. Thus, I advocate caution in treating all contracts as per se legal