Supply chains with or without upstream competition? Chrysovalantou Milliou * Universidad Carlos III de Madrid, Department of Economics, Getafe (Madrid) 28903, Spain 23 February 2004 Abstract We investigate a final good producer's incentives to engage in an exclusive relation with one of two competing input suppliers in an environment where both market sides undertake quality-enhancing investments and bargain over their terms of trade. Although the investments’ compatibility is full only under exclusivity, we still find that the investments under exclusivity can be lower than that under non-exclusivity. We also find that there exist cases in which although the investments are higher under exclusivity, the final good producer chooses non-exclusivity. Finally, we find that the final good producer’s choice of exclusivity in equilibrium is never welfare detrimental. JEL classification: L22; L42; L14; L15 Keywords: Exclusive Dealing; Supply Chains; Quality-enhancing Investments; Compatibility; Bargaining * E-mail: cmilliou@eco.uc3m.es . I am grateful to Massimo Motta, Emmanuel Petrakis and Karl Schlag for their valuable comments and discussions. I would also like to thank Vincenzo Denicoló and Margaret Slade for their helpful suggestions. Full responsibility for all shortcomings is mine.