Naked Exclusion: Towards a Behavioral Approach to Exclusive Dealing

Abstract

We report experimental results on exclusive dealing inspired by the literature on naked exclusion. Our key ndings are: First, exclusion of a more ecient entrant is a widespread phenomenon in lab markets. Second, allowing incumbents to discriminate between buyers increases exclusion rates compared to the non-discriminatory case only when payments to buyers can be oered sequentially and secretly. Third, allowing discrimination does not lead to signicant decreases in costs of exclusion. Accounting for the observation that buyers are more likely to accept an exclusive deal the higher is the payment, substantially improves the t between theoretical predictions and observed behavior.

An experimental study of exclusive contracts

“…Treatment 4 is left out of the estimation as there is clearly an 25 Examples include McKelvey and Palfrey (1995), Goeree et al (2002Goeree et al ( , 2005b, Anderson et al (2001Anderson et al ( , 2002, and Capra et al (1999). Boone et al (2009) estimate logit functions for exclusive contract experiments that are motivated in part by QRE but do not explicitly find the fixed point QRE or estimate λ. 26 The middle QRE never attains the highest potential and thus is never selected.…”

“…They also note that communication decreases exclusion with non-discriminatory offers but increases exclusion with discriminatory offers. A more recent study by Boone et al (2009) focuses on sequential contract offers and finds that discrimination increases exclusion rates only when offers are both sequential and private. They also show that a behavioral adaption of the model with estimated logit buyer signature probabilities helps to explain the data.…”

“…but private sequential offers (which may be less likely with communication) can increase exclusion(Boone et al, 2009).…”

Output Commitment Through Product Bundling: Experimental Evidence

“…Recent work in this area includes experimental analyses of vertical foreclosure (Martin et al, 2001), exclusive dealing (Landeo and Spier, 2009, Boone et al, 2009, Smith, 2011, and price discrimination (Normann et al, 2007). The only existing experimental paper on bundling we are aware of is by Caliskan et al (2007).…”

EXCLUSIVE QUALITY*

“… 9 There is some recent experimental evidence suggesting that naked exclusion is a prevalent phenomenon when consumers' demands are independent. See Smith [forthcoming], Spier and Landeo [2009] and Boone, Müller and Suetens [2009]. …”