ATTENTION - CANCELLED - The Dynamics of Technology Adoption and Vertical Restraints: an Empirical Analysis
joint with Alon Eizenberg and Andras Pechy
This paper examines an aspect of exclusive deals (and other vertical constraints) that has not, to the best of our knowledge, been addressed by the literature: their dynamic effects. We document these effects in the x86 processor industry, where Intel, a dominant upstream supplier, competes with a smaller contender, Advanced Micro Devices (AMD). During the studied period, Intel offered downstream clients rebates andsubsidies that were conditioned on the volume purchased from it and, sometimes, on the volume purchased from AMD. Our results indicate that the adoption of the AMD technology by a given downstream client was negatively affected by restrictions imposed on other clients. Furthermore, adoption was an increasing function of both the intensity of antitrust litigation against Intel’s exclusionary practices, and AMD’s production capacity. Taken together, these results imply that by striking exclusive deals with some downstream clients, a dominant upstream supplier may discourage adoption of a rival technology by (i) denying the rival from obtaining cashflow needed for investment in expanding its production capacity, and (ii) affecting clients’expectations regarding the rival’s future market position. Competition authorities should pay particular attention to market dynamics when assessing the potentialanticompetitive effects of exclusionary contracts.
More details on Prof. Dr. Michelle Sovinsky can be found at: http://sovinsky.vwl.uni-mannheim.de/4025.0.html