The Role of Exclusive Territories in Producers' Competition
AbstractThis article shows how vertical restraints, which affect intrabrand competition, can and will be used for reducing interbrand competition. Exclusive territories alter the perceived demand curve, making each producer believe he faces a less elastic demand curve, inducing an increase in the equilibrium price and producers' profits, even in the absence of franchise fees for recapturing retailers' rents. We analyze this strategic effect in a model that specifies the full range of feasible vertical contracts; thus we endogenize both whether exclusive contracts are employed and, if employed, the contract terms. Equilibria involve exclusive territories (with or without franchise fees), resulting in higher prices and profits but lower consumer surplus and total welfare.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 26 (1995)
Issue (Month): 3 (Autumn)
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Other versions of this item:
- Patrick Rey & Joseph Stiglitz, 1994. "The Role of Exclusive Territories in Producers' Competition," NBER Working Papers 4618, National Bureau of Economic Research, Inc.
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