Naked Exclusion: An Experimental Study of Contracts with Externalities

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  • Claudia M. Landeo
    Department of Economics, University of Alberta, Edmonton, AB T6G 2H4, Canada, and Northwestern University School of Law, Chicago, IL 60611.
  • Kathryn E. Spier
    Harvard Law School, Cambridge, MA 02138.

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<jats:p> This paper reports the results of an experiment on exclusive contracts. We replicate the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000). Our findings are as follows. First, when the buyers can communicate, discrimination raises the likelihood of exclusion. Second, when the incumbent seller is unable to discriminate and must make the same offers to the buyers, communication reduces the likelihood of exclusion. Communication also induces more generous offers when the seller cannot discriminate, and divide-and-conquer offers when the seller can discriminate. Third, when communication is allowed, payoff endogeneity increases the likelihood of exclusion. (JEL C72, C91, D62, D86, K12, K21, L12, L42) </jats:p>

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