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Vertical Restraints and the Law: Evidence from Automobile Franchising

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  • Giorgio Zanarone

Abstract

After a 2002 European Commission regulation prohibited the use of dealer-exclusive territories, automobile franchise contracts in Italy introduced price ceilings and standards on verifiable marketing and service inputs, such as advertising and salespeople. The contracts also imposed quantity floors, a practice already in use before the regulatory change. The introduction of standards suggests that, consistent with a view of vertical restraints as coordination mechanisms, manufacturers used exclusive territories to induce desired dealer services, and, once the use of exclusive territories was prohibited, they switched to alternative contractual devices to achieve this goal. The introduction of price ceilings despite free intrabrand competition also suggests that car manufacturers tried to prevent some dealers from gaming the quantity floors by selling to other dealers' customers while charging monopolistic prices at their own locations. (c) 2009 by The University of Chicago. All rights reserved.

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  • Giorgio Zanarone, 2009. "Vertical Restraints and the Law: Evidence from Automobile Franchising," Journal of Law and Economics, University of Chicago Press, vol. 52(4), pages 691-700, November.
  • Handle: RePEc:ucp:jlawec:v:52:y:2009:i:4:p:691-700
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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
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    Cited by:

    1. Albert Jolink & Eva Niesten, 2012. "Hybrid Governance," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 12 Edward Elgar Publishing.
    2. Xiao, Junji & Ju, Heng, 2016. "The determinants of dealership structure: Empirical analysis of the Chinese auto market," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 961-981.
    3. Bruce Owen, 2011. "Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(4), pages 363-386, June.
    4. Federico Revelli, 2013. "Tax Mix Corners and Other Kinks," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 741-776.
    5. repec:kap:ejlwec:v:44:y:2017:i:3:d:10.1007_s10657-015-9497-9 is not listed on IDEAS
    6. repec:eee:indorg:v:54:y:2017:i:c:p:37-64 is not listed on IDEAS
    7. Kosová, Renáta & Lafontaine, Francine, 2012. "Much ado about chains: A research agenda," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 303-308.
    8. Giorgio Zanarone, 2012. "Coase (1937) revisited: Endogenous fiat in firms and markets," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(2), pages 201-221, July.
    9. GIL, Ricard & KIM, Myongjim & ZANARONE, Giorgio, 2016. "The Value of Relational Adaptation in Outsourcing: Evidence from the 2008 shock to the US Airline Industry," Discussion paper series HIAS-E-32, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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