Exclusionary Contracts, Entry, and Communication

Heiko A. Gerlach
2007 Social Science Research Network  
I examine the incentives of firms to communicate entry into an industry where the incumbent writes exclusionary, long-term contracts with consumers. The entrant's information provision affects the optimal contract proposal by the incumbent and leads to communication incentives that are highly non-linear in the size of the innovation. Entry with small and medium-to-large innovations is announced whereas small-to-medium and large innovations are not communicated. It is demonstrated that this
more » ... ated that this equilibrium communication behavior maximizes ex ante total welfare by reducing the anti-competitive impact of excessively exclusive contracts. By contrast, consumers always prefer more communication and the incumbent's equilibrium contract maximizes ex ante consumer surplus. JEL-classification: L41, L12, D86
doi:10.2139/ssrn.1003367 fatcat:4yi574zakjb6rj4tzjypd7oebq