ACADEMIC ARTICLE SUMMARY
Naked Exclusion: Comment
Article Source: American Economic Review, Vol. 90, No. 1, pp. 296-309, 2000
Publication Date:Time to Read: 1 minute read
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This comment looks at how contracts with sellers help or harm buyers.
When there is one seller and many buyers, exclusive contracts tend to benefit sellers more than buyers.
- In an exclusive contract between a buyer and seller, the buyer promises to buy only from the seller. When there is only one seller and many buyers, sellers can use such contrasts to profit at buyers’ expense.
- Some argue that sellers must offer buyers a good price to persuade buyers to accept an exclusive contract. But this is not always true.
- When there are several buyers, they might have trouble acting in concert. Each might assume the others will sign exclusive contracts, so see no reason to avoid signing itself. No buyer has the power to reject the exclusive deal and make a difference overall.
- When sellers can negotiate different deals with different buyers (discriminate) sellers will tend to have more power in negotiations with buyers.
- The seller could offer exclusive deals only to some buyers, and none to others.
- If buyers deal with the seller at different times, the sellers can “divide and conquer,” and have more power to insist on exclusive arrangements without offering buyer a good price.
- These economic tendencies can also affect mergers, takeovers, licensing negotiations, and other situations.