Working Paper No. 12-05

Exclusive Dealing and its Effects: The Impact of Large Music Festivals on Local Music Venues
Scott Hiller
October 2012

ABSTRACT

In this paper I consider the use of exclusive contracts among four of the United States' most prominent music festivals to examine their influence on local music venues. Exclusive dealing questions have long been thought to either increase efficiency as theorized by the Chicago school, or cause a dampening of competition by restricting the options of competitors. Empirical anal ysis has been limited to a few industries and the effects are inconclusive. By utilizing a unique industry and multi-year dataset, as well as variation in the use of exclusive dealing across the country as determined by the location of large music festivals, this paper adds to the paucity of empirical analysis of exclusive dealing and provides new insight into an ignored sector of the music industry. Results show that exclusive contracts correlate with a decrease in the number of venues in affected cities by nine to 35 percent, with smaller cities being disproportionately
impacted. The distinct negative impact appears to be unique in the literature. This paper shows the potential for competition dampening and proves that exclusive dealing is not only efficiency enhancing, but can be anticompetitive.

JEL classification: L11, L42, K82
Keywords: Competitive effects, exclusive contracts, exclusive dealing, music industry

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