Naked Exclusion and the Anticompetitive Accommodation of Entry

We model exclusive dealing when the incumbent and potential entrant offer differentiated products and buyers are downstream firms. While the resulting exclusive dealing is always anticompetitive, it does not necessarily involve foreclosure. Rather, when products are sufficiently differentiated, the incumbent uses exclusive deals to further soften competition by limiting downstream competition for the rival's product. On the other hand, when products are not much differentiated, this strategic effect is weak and the incumbent does better by signing up all downstream firms, excluding the entrant, and raising industry profits