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The Economic Theory Of Vertical Restraints

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  • Oana Secrieru

Abstract

The types of contracts arising in a typical vertical manufacturer–retailer relationship are more sophisticated than a simple uniform price. In addition to setting per unit prices, manufacturers and retailers also revert to non‐linear pricing and non‐price instruments. These instruments or contracts are referred to as vertical restraints and can take the form of franchise fees, resale‐price maintenance, exclusive dealing, exclusive territories and slotting allowances. The use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers. This paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices, market structure, efficiency and welfare.

Suggested Citation

  • Oana Secrieru, 2006. "The Economic Theory Of Vertical Restraints," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 797-822, December.
    • Handle: RePEc:bla:jecsur:v:20:y:2006:i:5:p:797-822
    DOI: 10.1111/j.1467-6419.2006.00269.x
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    References listed on IDEAS

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    2. Kunter, Marcus, 2012. "Coordination via cost and revenue sharing in manufacturer–retailer channels," European Journal of Operational Research, Elsevier, vol. 216(2), pages 477-486.

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