Exclusive contracts with private information in successive differentiated oligopolies

Abstract

The purpose of this article is to analyze the incentives of manufacturers to deal exclusively with retailers in bilaterally duopolistic industries with brand differentiation by manufacturers. In contrast with the previous literature, exclusive contracts are shown to generate higher profits for manufacturers and retailers selling highly differentiated products, who thus have an incentive to insist on exclusive contracting. However, if the products are close substitutes no exclusivity will emerge in equilibrium. Furthermore, we show that exclusive contracts decrease both consumer and social welfare.