Journal Article

Contracts as a Barrier to Entry

Philippe Aghion and Patrick Bolton
The American Economic Review
Vol. 77, No. 3 (Jun., 1987), pp. 388-401
Stable URL: http://www.jstor.org/stable/1804102
Page Count: 14
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Contracts as a Barrier to Entry
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Abstract

It is shown that an incumbent seller who faces a threat of entry into his or her market will sign long-term contracts that prevent the entry of some lower-cost producers even though they do not preclude entry completely. Moreover, when a seller possesses superior information about the likelihood of entry, it is shown that the length of the contract may act as a signal of the true probability of entry.

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