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Networks of manufacturers and retailers

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Author Info

  • Mauleon, Ana
  • Sempere-Monerris, Jose J.
  • Vannetelbosch, Vincent J.

Abstract

We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers. We find that, under both types of contracts (linear and two-part tariffs), only three distribution networks are stable for particular values of the degree of product differentiation and link costs: the non-exclusive distribution and non-exclusive dealing network, the exclusive distribution and exclusive dealing network, and a mixed distribution network in which both exclusive and non-exclusive relations are observed. Moreover, the stability of the first two networks is robust to the case of manufacturers with no bargaining power and the case of differentiated retailers who compete in prices. We show that, under both types of contracts, the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is low enough.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 77 (2011)
Issue (Month): 3 (March)
Pages: 351-367

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Handle: RePEc:eee:jeborg:v:77:y:2011:i:3:p:351-367

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Web page: http://www.elsevier.com/locate/jebo

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Keywords: Networks Retailers Manufacturers;

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References

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  1. B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
  2. Sass, Tim R., 2005. "The competitive effects of exclusive dealing: Evidence from the U.S. beer industry," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 203-225, April.
  3. Slade, Margaret E, 1998. "Beer and the Tie: Did Divestiture of Brewer-Owned Public Houses Lead to Higher Beer Prices?," Economic Journal, Royal Economic Society, vol. 108(448), pages 565-602, May.
  4. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent J., 2004. "Rationalizability for social environments," Open Access publications from Maastricht University urn:nbn:nl:ui:27-12153, Maastricht University.
  5. Ping Wang & Alison Watts, 2006. "Formation of buyer-seller trade networks in a quality-differentiated product market," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 971-1004, August.
  6. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent, 2009. "Farsightedly stable networks," Open Access publications from Maastricht University urn:nbn:nl:ui:27-22854, Maastricht University.
  7. Besanko, David & Perry, Martin K., 1994. "Exclusive dealing in a spatial model of retail competition," International Journal of Industrial Organization, Elsevier, vol. 12(3), pages 297-329, September.
  8. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  9. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
  10. Belleflamme, Paul, 2004. "Market sharing agreements and collusive networks," Open Access publications from Université catholique de Louvain info:hdl:2078/17009, Université catholique de Louvain.
  11. Jackson, Matthew O. & van den Nouweland, Anne, 2002. "Strongly Stable Networks," Working Papers 1147, California Institute of Technology, Division of the Humanities and Social Sciences.
  12. Goyal, S. & Joshi, S., 2000. "Networks of Collaboration in Oligopoly," Econometric Institute Report EI 9952-/A, Erasmus University Rotterdam, Econometric Institute.
  13. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  14. Rachel E. Kranton & Deborah F. Minehart, 1999. "Competition for Goods in Buyer-Seller Networks," Cowles Foundation Discussion Papers 1232, Cowles Foundation for Research in Economics, Yale University.
  15. Rafael Moner-Colonques & José J. Sempere-Monerris & Amparo Urbano, 2004. "The Manufacturers’ Choice of Distribution Policy under Successive Duopoly," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 532-548, January.
  16. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
  17. Rafael MONER-COLONQUES & José J. SEMPERE-MONERRIS & Amparo URBANO, 2002. "The Manufacturers’ Choice of Brand Policy under Successive Duopoly," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  18. Page Jr., Frank H. & Wooders, Myrna, 2007. "Networks and clubs," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 406-425.
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  20. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
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  22. Calvo-Armengol, Antoni, 2004. "Job contact networks," Journal of Economic Theory, Elsevier, vol. 115(1), pages 191-206, March.
  23. Ana Mauleon & Jose J. Sempere-Monerris & Vincent Vannetelbosch, 2008. "Networks of knowledge among unionized firms," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 971-997, August.
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  25. repec:fth:eeccco:119 is not listed on IDEAS
  26. Lin, Y Joseph, 1990. "The Dampening-of-Competition Effect of Exclusive Dealing," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 209-23, December.
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Citations

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Cited by:
  1. CAULIER, Jean-François & MAULEON, Ana & VANNETELBOSCH, Vincent, 2008. "Contractually stable networks," CORE Discussion Papers 2008066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. BEDAYO, Mikel & MAULEON, Ana & VANNETELBOSCH, Vincent, 2012. "Bargaining and delay in trading networks," CORE Discussion Papers 2012046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. repec:hal:wpaper:hal-00633611 is not listed on IDEAS
  4. Hemant Patil, 2011. "Buyer–seller networks with demand shocks and intermediation," Review of Economic Design, Springer, vol. 15(2), pages 121-145, June.
  5. CAULIER, Jean-François & MAULEON, Ana & SEMPERE-MONERRIS, José J. & VANNETELBOSCH, Vincent, 2011. "Stable and efficient coalitional networks," CORE Discussion Papers 2011039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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