The naked truth about exclusive dealing

Exclusivity clauses that commit a consumer to procure a good from a unique supplier are regularly debated in competition policy circles. One of the main 'theories of harm', the so-called 'naked exclusion' story, holds that an incumbent firm can play on buyers' coordination difficulties to deny an entrant the scale it needs in order to produce efficiently. In a recent TILEC discussion paper, TILEC members Jan Boone, Wieland Müller and Sigrid Suetens report experimental results on the impact of exclusive dealing inspired by this literature. Their key findings are as follows. First, exclusion is widespread in lab markets: it occurs in more than two thirds of all cases. Second, contrary to theory, allowing incumbents to discriminate between buyers increases exclusion rates only when offers can be made sequentially and secretly. Third, allowing discrimination does not lead to significant decreases in the costs of exclusion. Behind those observations lies the fact that buyers are more likely to accept an exclusive deal the higher the payment. The authors conclude that for practical purposes, an antitrust authority should be on high alert whenever the suspected firm (i) staggered its contracts over time, and (ii) took active measures to keep previous offers secret.