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Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective

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  • Teis Lunde Lømo
  • Simen A. Ulsaker

Abstract

How should manufacturers motivate their retailers to provide customer services? The vertical restraints literature tells us that retail competition distorts service incentives in the short run. We consider how repeated interaction mitigates this problem, and particularly how a manufacturer can provide service incentives with discretionary lump‐sum payments. We find that these payments may allow the manufacturer to sustain optimal service levels even if retailers are very impatient. We also show that banning reverse lump‐sum payments may deprive consumers of the chance to enjoy high‐quality services, and thereby reduce their welfare.

Suggested Citation

  • Teis Lunde Lømo & Simen A. Ulsaker, 2021. "Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 131-168, March.
    • Handle: RePEc:bla:jindec:v:69:y:2021:i:1:p:131-168
    DOI: 10.1111/joie.12236
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    Cited by:

    1. Lømo, Teis Lunde & Meland, Frode & Sandvik, Håvard Mork, 2020. "Do slotting allowances reduce product variety?," Working Papers in Economics 7/20, University of Bergen, Department of Economics.

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