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Vertical Restraints and Producers' Competition

  • Patrick Rey
  • Joseph E. Stiglitz

This paper examines the rationale for vertical restraints. It shows that there are important circumstances under which these restrictions have significant anti-competitive effects. The paper focuses on the consequences of exclusive territorial arrangements among the retailers of two products which are imperfect substitutes. Such arrangements are shown to increase consumer prices; under plausible conditions the increase in consumer prices is sufficiently large to more than offset the deleterious effects from "double marginalization" resulting from reduced competition among retailers. The imposition of exclusivity provisions is may be part of a Nash equilibrium among producers. These results hold whether there are or are not franchise fees.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2601.

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Date of creation: May 1988
Date of revision:
Publication status: published as European Economic Review, Vol. 32, pp. 561-568, (1988).
Handle: RePEc:nbr:nberwo:2601
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