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Vertical Contracts and Mandatory Universal Distribution

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  • Karp Larry S.

    ()

  • Perloff Jeffrey M.

    () (Department of Agricultural and Resource Economics, University of California, 207 Giannini Hall, Berkeley, CA 94720, USA)

Abstract

An upstream monopoly that provides a new good to a downstream oligopoly might prefer to sell to a single rather than to multiple downstream firms. For example, Apple initially sold its iPhone through one vendor. If a monopoly uses a single vendor, the government may impose a mandatory universal distribution (MUD) requirement that forces the monopoly to sell to all downstream vendors. However, if the income elasticity of demand for the new good is greater than the income elasticity of the existing generic good, the MUD requirement leads to a higher equilibrium price for both the new good and the generic and lowers consumer welfare.

Suggested Citation

  • Karp Larry S. & Perloff Jeffrey M., 2013. "Vertical Contracts and Mandatory Universal Distribution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 595-626, October.
  • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:2:p:595-626:n:16
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    References listed on IDEAS

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    1. Argenton, Cédric, 2006. "Exclusive Quality," SSE/EFI Working Paper Series in Economics and Finance 640, Stockholm School of Economics, revised 05 Jun 2007.
    2. Rafael Moner-Colonques & José J. Sempere-Monerris & Amparo Urbano, 2004. "The Manufacturers’ Choice of Distribution Policy under Successive Duopoly," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 532-548, January.
    3. Bustos Alvaro E & Galetovic Alexander, 2009. "Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-52, September.
    4. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
    5. Sofia Berto Villas-Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46.
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    1. repec:kap:jeczfn:v:121:y:2017:i:3:d:10.1007_s00712-017-0529-5 is not listed on IDEAS

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