Unobservable Vertical Restraints and Interbrand Competition
AbstractThis 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 InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 136.
Length: 25 pages
Date of creation: Nov 1996
Date of revision:
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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
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