IDEAS home Printed from https://ideas.repec.org/p/hhs/hastef/0058.html
   My bibliography  Save this paper

Long Term Contracts, Arbitrage, and Vertical Restraints

Author

Listed:
  • Ellingsen, Tore

    (Dept. of Economics, Stockholm School of Economics)

Abstract

The paper argues that sellers sometimes impose exclusivity clauses on their buyers in order to prevent arbitrage between brands. In a duopoly model in which the sellers compete through fairly general long term contracts, it is shown that common agency is always allowed whenever reselling can be controlled directly, but that exclusive dealing is imposed otherwise. The model also offers a new rationale for ex post inefficient penalties for breach of contract. Equilibrium long term contracts are shown to reduce sellers'profits and to increase the buyers'surplus relative to the spot market level. exclusive dealing lowers overall welfare in this model. As an illustraiton, the theory is applied to the case of British brewers.

Suggested Citation

  • Ellingsen, Tore, 1995. "Long Term Contracts, Arbitrage, and Vertical Restraints," SSE/EFI Working Paper Series in Economics and Finance 58, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0058
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hastef/papers/hastef0058.ps
    Download Restriction: no
    File URL: http://swopec.hhs.se/hastef/papers/hastef0058.ps.zip
    Download Restriction: no
    File URL: http://swopec.hhs.se/hastef/papers/hastef0058.pdf
    Download Restriction: no
    File URL: http://swopec.hhs.se/hastef/papers/hastef0058.pdf.zip
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
    4. Comanor, William S & Frech, H E, III, 1985. "The Competitive Effects of Vertical Agreements?," American Economic Review, American Economic Association, vol. 75(3), pages 539-546, June.
    5. Polo, Michele, 1991. "Hotelling Duopoly with Uninformed Consumers," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 701-715, December.
    6. Comanor, William S & Frech, H E, III, 1987. "The Competitive Effects of Vertical Agreements: Reply," American Economic Review, American Economic Association, vol. 77(5), pages 1069-1072, December.
    7. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
    8. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
    9. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    10. Mathewson, G Frank & Winter, Ralph A, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1057-1062, December.
    11. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    12. Besanko, David & Perry, Martin K., 1994. "Exclusive dealing in a spatial model of retail competition," International Journal of Industrial Organization, Elsevier, vol. 12(3), pages 297-329, September.
    13. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721, Elsevier.
    14. Schwartz, Marius, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1063-1068, December.
    15. Innes, Robert & Sexton, Richard J, 1994. "Strategic Buyers and Exclusionary Contracts," American Economic Review, American Economic Association, vol. 84(3), pages 566-584, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.
    2. Caillaud, Bernard & Rey, Patrick, 1995. "Strategic aspects of vertical delegation," European Economic Review, Elsevier, vol. 39(3-4), pages 421-431, April.
    3. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
    4. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    5. Oana Secrieru, 2006. "The Economic Theory Of Vertical Restraints," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 797-822, December.
    6. Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
    7. Sass, Tim R., 2005. "The competitive effects of exclusive dealing: Evidence from the U.S. beer industry," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 203-225, April.
    8. David Mills, 2007. "Quasi-Partnerships in Distribution," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(3), pages 155-168, November.
    9. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Yong, Jong-Say, 1999. "Exclusionary Vertical Contracts and Product Market Competition," The Journal of Business, University of Chicago Press, vol. 72(3), pages 385-406, July.
    11. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, May.
    12. William Comanor & Patrick Rey, 2000. "Vertical Restraints and the Market Power of Large Distributors," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(2), pages 135-153, September.
    13. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    14. Yaron Yehezkel, 2008. "Retailers' choice of product variety and exclusive dealing under asymmetric information," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 115-143, March.
    15. Martin Peitz & Paolo G. Garella, 1999. "- Exclusive Dealing Clauses Facilitate Entry," Working Papers. Serie AD 1999-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    16. Paolo G. Garella & Martin Peitz, 2000. "Intermediation Can Replace Certification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 1-24, March.
    17. Thorsten Posselt, 1999. "Ausschließlichkeitsbindungen als Anreiz zum Handelsmarketing — Eine Untersuchung zur Gestaltung von Distributionssystemen," Schmalenbach Journal of Business Research, Springer, vol. 51(4), pages 350-376, April.
    18. Klein, Joachim & Zenger, Hans, 2009. "Predatory Exclusive Dealing," Discussion Papers in Economics 10626, University of Munich, Department of Economics.
    19. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    20. DeGraba, Patrick, 2013. "Naked exclusion by a dominant input supplier: Exclusive contracting and loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 516-526.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0058. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Helena Lundin (email available below). General contact details of provider: https://edirc.repec.org/data/erhhsse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.