In this paper we show that, in the presence of buyer and seller power, a monopolist can enter into a costly contractual relationship with a low-quality supplier with the sole intention of improving its bargaining position relative to a high-quality supplier, without ever selling the good...

Contractual inefficiencies within supply chains increase an input price above its marginal cost, therefore they are considered detrimental to consumer surplus. We argue that such inefficiencies may be beneficial to consumers in quality-differentiated markets where the "finiteness property"...