Eric B. Rasmusen, J. Mark Ramseyer & John Shepard Wiley Jr., Letter, Naked Exclusion: Reply, Am. Econ. Rev., Mar. 2000, at 310.
Abstract: We are grateful to Ilya Segal and Michael Whinston for improving our analysis. We are pleased they confirm our two main conclusions. The first is that normally a firm cannot use contracts with its customers or suppliers inefficiently to exclude a rival from competition, because the high price of these contracts will make this strategy unprofitable. This is an old point, well summarized in Robert Bork's 1978 book. Second, and in contrast, exclusionary contracts can be profitable, effective, and socially inefficient--under certain limited conditions. One condition is that firms in the industry must be able to operate only at or above some minimum efficient scale. Another condition is that the victims--customers or suppliers--must expect that the exclusionary tactic will succeed, and must be unable to coordinate their actions to defeat the tactic. An excluding firm in this situation can buy naked exclusion affordably because it can scare victims into selling cheaply; no single victim can stop the exclusion by itself, so no single victim has any bargaining power. At a theoretical limit, the excluding firm can gain the exclusionary rights for free.