In a recent paper, Chiara Fumagalli and Massimo Motta (2006) challenge the idea that an incumbent can foreclose efficient entry in the face of scale economies by using exclusive contracts. They claim that inefficient exclusion does not arise when buyers are homogenous firms that compete downstream. However, when upstream firms can compete in two-part tariffs, their equilibrium analysis contains some errors. Fixing these errors, inefficient exclusion arises when scale economies are sufficiently large or the entrant's cost advantage is not too big. Inefficient exclusion arises to protect industry profits from competition.

This article investigates which companies finance themselves through intermediaries and which borrow directly from arm's length investors. Our empirical results show that large companies with abundant cash and collateral tap credit markets directly; these markets cater to safe and profitable industries, and are most active when riskless rates or intermediary earnings are low. We show that determinants of lender selection sharpen during investment downturns and that there are substantial asymmetries in the way firms enter and exit capital markets. These results support a theoretical framework where intermediaries have better reorganizational skills but a higher opportunity cost of capital than bondholders.

For many applications of signalling, senders rather than nature choose unobserved features such as their private choices of quality, capacity, investment, contract, or price, along with other actions that are (partially) observed by receivers. Despite the large number of different applications, these games have not been studied in any systematic way. We identify and study a general class of such games, which we call “endogenous signalling games”. These games normally suffer from a plethora of equilibria. To focus on reasonable equilibria, we propose to solve such games by requiring that the solution be invariant to a particular reordering of the senders’ moves. For a class of single-sender monotone endogenous signalling games, we show that the sender’s private choice can still have some commitment value even though it is not observed and that the sender’s signals must be exaggerated in equilibrium. Applications to loss-leader pricing, costly announcements, limit pricing, advertising, corporate financing, and private contracting are given.

Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary’s technology. We develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates. With this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary. We show that this leads to inflated retail prices, excessive adoption of the intermediaries’ services, over-investment in benefits to buyers, and a reduction in consumer surplus and sometimes welfare. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We discuss applications to payment card systems, travel reservation systems, rebate services, and various other intermediaries.

Weyl (2010) shows that in multi-sided platform settings, profit maximization leads to classical and Spence distortions, with the Spence distortion providing a new explanation for why prices may sometimes be too high (or too low) on platforms. However, the key formulas that Weyl gives comparing privately and socially optimal prices are misstated. Properly interpreted, his results only explain marginal incentives with respect to setting prices but not the total distortion in prices, which can be very different.