Abstract
We study the trade‐off between the positive effects (risk‐sharing) and negative effects (exclusion) of exclusivity contracts. We revisit the seminal model of Aghion and Bolton [] under risk‐aversion and show that although exclusivity contracts induce optimal risk‐sharing, they can be used not only to deter the entry of a more efficient rival into the product market but also to crowd out financial investors willing to insure the buyer at competitive rates. We further show that in a world without financial investors, purely financial bilateral instruments, such as forward contracts, achieve optimal risk‐sharing without distorting product market outcomes. Thus, risk‐sharing alone cannot be invoked to defend exclusivity contracts.
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