An Economic Analysis of Exclusive Contracts

Abstract Under Chinese anti-monopoly law, large platforms are forbidden to use exclusive contracts to prevent online shops from doing business with competing platforms. The alleged purpose of the law is to promote competition among the platforms, for it is widely believed that large platforms are able to eliminate competition with exclusive contracts and gain monopoly profits. However, we argue that exclusive contracts are probably used for protecting the investment of the platforms; that the platform, online shops and the competing platforms tend to allocate resources efficiently. If the exclusive contract is used inefficiently, the platform would bear extra costs and its economic strength and competitiveness would be weakened, and the exclusive contract will be difficult to sustain. It is unlikely that platforms with “market dominance” are able to use exclusive contracts to eliminate competition. Cursory banning of exclusive contract could put “freedom of contract” and private property rights at risk.