Distributional Effects of Exclusive Dealing in Retail Real Estate

We study the welfare implications of exclusive dealing in the U.S. retail sector. Using a novel dataset, we document widespread use of exclusive dealing contracts that exclude local entry by rival stores. Public officials increasingly critique such practices as anti-competitive. At the same time, the extant literature on exclusive dealing has also shown that these contracts can stimulate entry into otherwise under served markets. Descriptive analysis suggests that stores with exclusive dealing contracts face fewer competitors and higher prices. We use a structural approach to measure the counterfactual impact of a ban on exclusive dealing. We estimate a model of household-level store choices that accounts for price sensitivity, distance sensitivity, and potential complementarities across retailers. Upstream, we estimate a static entry game between retailers and landlords that accounts for downstream variable profits and information asymmetry between retailers and landlords. Results show that exclusive dealing benefits most landlords, large retailers, as well as households living in sparse retail environments. Banning exclusive dealing would increase welfare for some households, but would cause an increase in the number of households living in food deserts and harm consumers living in these under-resourced areas.