Vertical Control and Price versus Nonprice Competition
This paper considers a manufacturer distributing a product through retailers who compete in price and service, which reduces the time it takes to purchase a good. The mix of these instruments that maximizes collective profit is determined by the tastes of consumers on the "product margin," whereas decentralized retailers consider as well the tastes of consumers on the interretai ler margins. Given search or travel costs, consumers with low time cost s are overrepresented on the interretailer margins. In considering customers on the wrong margin, retailers are, therefore, biased towa rd price competition. This distortion can be corrected with vertical restraints. Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 108 (1993)
Issue (Month): 1 (February)
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