The Competitive Effects of Exclusive Dealing Arrangements

This essay reviews and synthesizes some recent literature on the competitive effects of exclusive dealing agreements. I outline various procompetitive rationales for the practice including the non-dilution of incentives, protection of relationship-specific investments, and the elimination of free riding on reputation or brand-name capital. I examine also the circumstances under which exclusive dealing agreements can have anticompetitive foreclosure effects. I argue that these circumstances can be partially characterized by a set of necessary conditions on entry conditions, production technologies, the existence of a diffusely held scarce input, and the nature of the contracting environment (e.g., whether incumbents have a first-mover advantage)