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Prof. Volker Nocke

University of Mannheim, Germany

Authors: Volker Nocke and Patrick Rey

Abstract: We develop a model of interlocking bilateral relationships between upstream manufacturers that produce differentiated goods and downstream retailers that sell these goods on to consumers. Contract offers and acceptance decisions are private information to the contracting parties. We show that both exclusive dealing and vertical integration between a manufacturer and a retailer lead to the foreclosure of rival manufacturers from access to that retailer, at the detriment of consumers. Moreover, we show that firms have an incentive to write such contracts or to integrate vertically.

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