Estimating the foreclosure effect of exclusive dealing: Evidence from the entry of specialty beer producers

Abstract

This paper estimates an entry model to study the effect of exclusive dealing between Anheuser Busch and its distributors on rival brewers' entry decisions and consumer surplus. The entry model accounts for post-entry demand conditions and strategic spillover effects. I recover a brewer's fixed costs using a two-step estimator and find spillover effects on brewers' entry decisions. I find that a brewer has higher fixed costs at locations where Anheuser Busch employ exclusive distributors, but the effect is only statistically significant in certain local areas. The estimates also show that a brewer is less likely to enter a location that is farther from its brewery, has lower expected demand, or is smaller in store size. I implement counterfactual experiments to study the effect of banning exclusive contracts between Anheuser Busch and its distributors. The results show that the welfare improvement associated with banning such contracts is very small.