A re‐examination of the competitive effects of exclusive dealing

Abstract

The seminal 1987 paper by Mathewson and Winter demonstrates that the competitive effects of exclusive dealing depend on firm asymmetries. Revisiting their model with linear demand and constant marginal costs, we show that the equilibrium adoption and welfare impact of exclusive dealing are fully characterized by two sufficient statistics: the standalone surplus ratio (capturing the dominant firm's competitive advantage) and the geometric mean of demand diversion ratios (measuring product substitutability). Exclusive dealing is more likely to arise and harm consumer surplus when competitive advantage is stronger and products are closer substitutes. A stronger competitive advantage also raises the likelihood that exclusive dealing reduces social welfare, while the effect of substitutability on welfare is non‐monotonic. We also show that both competitive advantage and substitutability can be empirically recovered from diversion ratios and market shares under the no‐exclusive dealing regime.