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Unobservable Vertical Restraints and Interbrand Competition

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Author Info
Kang, Yeongjae (Department of Economics)
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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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
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Handle: RePEc:hhs:hastef:0136

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Related research
Keywords: Vertical restraint unobservable contract risk aversion

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
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  1. Caillaud, B. & Julien, B. & Picard, P., 1991. "Competing Vertical Structures: Precommitment and Renegotiation," Papers 9121, Institut National de la Statistique et des Etudes Economiques-.
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  2. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring. [Downloadable!] (restricted)
  3. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn. [Downloadable!] (restricted)
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  4. Bernheim, B.D., 1992. "Exclusive Dealing," Harvard Institute of Economic Research Working Papers 1622, Harvard - Institute of Economic Research.
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  5. Gal-Or, Esther, 1991. "Optimal franchising in oligopolistic markets with uncertain demand," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 343-364, September. [Downloadable!] (restricted)
  6. Patrick Rey & Joseph Stiglitz, 1994. "The Role of Exclusive Territories in Producers' Competition," NBER Working Papers 4618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier. [Downloadable!] (restricted)
  8. Winter, Ralph A, 1993. "Vertical Control and Price versus Nonprice Competition," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 61-76, February. [Downloadable!] (restricted)
  9. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring. [Downloadable!] (restricted)
  10. Stiglitz, J. & Rey, P., 1988. "Vertical Restraints And Producers' Competition," Papers 13, Princeton, Woodrow Wilson School - Discussion Paper.
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  11. MARTIMORT, David, 1994. "Exclusive Dealing, Common Agency and Multiprincipals Incentive Theory," IDEI Working Papers 43, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1996.
  12. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
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