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Entry and Product Variety with Competing Supply Chains

We study a supply chain model where competing manufacturers located around a circle contract with privately informed and exclusive retailers. The number of brands in the market (determined by the manufacturers’ zero profit condition) depends on the level of asymmetric information within supply chains and on the types of contracts between manufacturers and retailers. With two-part tariffs, wholesale prices fully reflect retailers’ costs. With linear contracts, wholesale prices are constant and independent of retailers’ costs. The number of brands is lower (resp. higher) with asymmetric information than with complete information when contracts are linear (resp. with two-part tariffs). Moreover, the number of brands is always higher with linear contracts than with two-part tari¤s. We also analyze the effects of endogenous entry on welfare.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 343.

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Date of creation: 10 Oct 2013
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Handle: RePEc:sef:csefwp:343
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  12. Kelvin Lancaster, 1990. "The Economics of Product Variety: A Survey," Marketing Science, INFORMS, vol. 9(3), pages 189-206.
  13. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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  16. David Martimort & Salvatore Piccolo, 2010. "The Strategic Value of Quantity Forcing Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 204-29, February.
  17. Patrick Rey & Joseph Stiglitz, 1994. "The Role of Exclusive Territories in Producers' Competition," NBER Working Papers 4618, National Bureau of Economic Research, Inc.
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