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Unobservable Vertical Restraints and Interbrand Competition

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  • Kang, Yeongjae

    (Department of Economics)

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    Abstract

    This paper presents a model of vertical restraints with unobservable contracts in a market where retailers compete in price and service. The equilibrium contracts under the franchise and the resale price maintenance arrangements are shown to differ in the way they lessen competition between retailers. The franchise contract is more effective for lessening competition in price while the RPM for collusion in service. Consequently, the equilibrium of the manufacturers’ vertical restraint selection game depends on the nature of their strategic interaction. An increase in retailer’s risk aversion and/or demand uncertainty favors RPM

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 136.

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    Length: 25 pages
    Date of creation: Nov 1996
    Date of revision:
    Handle: RePEc:hhs:hastef:0136

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    Related research

    Keywords: Vertical restraint; unobservable contract; risk aversion;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Patrick Rey & Joseph E. Stiglitz, 1988. "Vertical Restraints and Producers' Competition," NBER Working Papers 2601, National Bureau of Economic Research, Inc.
    2. Gal-Or, Esther, 1991. "Optimal franchising in oligopolistic markets with uncertain demand," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(3), pages 343-364, September.
    3. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 396, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Bernheim, B.D., 1992. "Exclusive Dealing," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1622, Harvard - Institute of Economic Research.
    5. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, Econometric Society, vol. 63(3), pages 621-46, May.
    7. Patrick Rey & Joseph Stiglitz, 1995. "The Role of Exclusive Territories in Producers' Competition," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 431-451, Autumn.
    8. Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Martimort, D., 1992. "Exclusive Dealing, Common Agency and Multiprincipals Incentive Thoery," Papers, Toulouse - GREMAQ 92.278, Toulouse - GREMAQ.
    10. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
    11. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    12. Winter, Ralph A, 1993. "Vertical Control and Price versus Nonprice Competition," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 61-76, February.
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