A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling

Abstract

We develop a unified theory of exclusive dealing and exclusionary bundling.In a framework with two competing manufacturers which supply their product(s) through a monopolist retailer, we show that buyer power restores the profitability of such practices involving inefficient exclusion. The mechanism underlying this exclusion is that the compensation required by the retailer to renounce selling the rival product erodes with its buyer power. Among others, we further show that our theory holds when the buyer power differs across manufacturers or when the retailer can strategically narrow (or expand) its product assortment.

Anticompetitive Bundling When Buyers Compete

“…9 See Matutes and Regibeau (1988) for an early analysis of competitive bundling in duopoly, and Zhou (2017) for a recent general treatment. may prevent the dominant firm from extracting enough surplus using independent pricing, and that tying can be a way to circumvent these frictions (Greenlee, Reitman and Sibley, 2008;Choi and Jeon, 2021;de Cornière and Taylor, 2021;Chambolle and Molina, forthcoming). Our paper can be understood as belonging to this last literature insofar as we rule-out public contracts.…”