IDEAS home Printed from https://ideas.repec.org/p/vig/wpaper/0607.html
   My bibliography  Save this paper

Some empirical regularities on vertical restraints

Author

Listed:
  • Xulia González

Abstract

Vertical restraints most often arise when an upstream firm wants to restrict the choices of a downstream distributor in order to increase profits. The aim of this paper is to analyze some empirical regularities in the motivations for vertical restraints. Firstly a simple theoretical framework is developed in which an upstream monopoly decides on the intermediate price and an effort level which increase consumer demand, while the distributor decides on the final price. Two externalities arises: the double marginalization and a positive vertical externality due to the effort. The main result of the model indicates that the incentives to vertical coordination are higher when upstream firm make sales effort. Secondly, we test this theoretical prediction with a sample of more than 2000 Spanish manufacturing firms that report detailed information on firms’ distribution system and the type of vertical restraints that they impose to their distributors. The main results indicate that the greater the effort put in the upstream firm, the higher the probability of imposing vertical restraints. Furthermore, there is an important heterogeneity by industry and size in the probability to impose vertical restraints.

Suggested Citation

  • Xulia González, 2006. "Some empirical regularities on vertical restraints," Working Papers 0607, Universidade de Vigo, Departamento de Economía Aplicada.
    • Handle: RePEc:vig:wpaper:0607
    as

    Download full text from publisher

    File URL: https://webx06.webs8.uvigo.es/wp-content/uploads/2023/11/wp0607.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    2. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
    3. Rey, Patrick & Tirole, Jean, 1986. "The Logic of Vertical Restraints," American Economic Review, American Economic Association, vol. 76(5), pages 921-939, December.
    4. Patrick Rey & Thibaud Verge, 2002. "Resale Price Maintenance and Horizontal Cartel," The Centre for Market and Public Organisation 02/047, The Centre for Market and Public Organisation, University of Bristol, UK.
    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. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
    2. Gallini, Nancy T. & Hollis, Aidan, 1999. "A contractual approach to the gray market," International Review of Law and Economics, Elsevier, vol. 19(1), pages 1-21, March.
    3. Ingene, Charles A. & Parry, Mark E. & Xu, Zibin, 2020. "Resale Price Maintenance: Customer Service Without Free Riding," Journal of Retailing, Elsevier, vol. 96(4), pages 563-577.
    4. Kai-Uwe Kuhn, 1997. "Nonlinear Pricing in Vertically Related Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 37-62, Spring.
    5. Fumagalli, Chiara & Motta, Massimo, 2001. "Upstream mergers, downstream mergers, and secret vertical contracts," Research in Economics, Elsevier, vol. 55(3), pages 275-289, September.
    6. Kunter, Marcus, 2012. "Coordination via cost and revenue sharing in manufacturer–retailer channels," European Journal of Operational Research, Elsevier, vol. 216(2), pages 477-486.
    7. Lømo, Teis Lunde, 2015. "Risk sharing mitigates opportunism in vertical contracting," Working Papers in Economics 10/15, University of Bergen, Department of Economics.
    8. Liang Guo & Ganesh Iyer, 2013. "Multilateral Bargaining and Downstream Competition," Marketing Science, INFORMS, vol. 32(3), pages 411-430, May.
    9. Muriel Fadairo & Cyntia Lanchimba & Miguel Yangari, 2016. "Optimal Monetary Provisions and Risk Aversion in Plural Form Franchise Network. A Model of Incentives with Heterogeneous Agents," Working Papers 1602, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    10. Eugenio Jose Silva Bitti & Muriel Fadairo & Cintya Lanchimba & Vivian-Lara Silva, 2016. "Spatial strategies in Brazilian Franchising; Behavior categories and Performance Outcome," Working Papers 1614, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    11. Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143, March.
    12. Laurent Linnemer, 2022. "Doubling Back on Double Marginalization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 1-19, August.
    13. Kenji, Matsui, 2011. "Resale price maintenance for supply chains distributing products with demand uncertainty," International Journal of Production Economics, Elsevier, vol. 134(2), pages 375-387, December.
    14. Schuett, Florian, 2012. "Field-of-use restrictions in licensing agreements," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 403-416.
    15. repec:dpr:wpaper:0878 is not listed on IDEAS
    16. Markus Dertwinkel‐Kalt & Mats Köster, 2022. "Attention to online sales: The role of brand image concerns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 64-89, February.
    17. Kitamura, Hiroshi & Matsushima, Noriaki & Sato, Misato, 2018. "Exclusive contracts with complementary inputs," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 145-167.
    18. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(1), pages 57-84, April.
    19. Sexton, Richard J., 1991. "Game Theory: A Review With Applications To Vertical Control In Agricultural Markets," Working Papers 225865, University of California, Davis, Department of Agricultural and Resource Economics.
    20. Toshihiro Matsumura, 2003. "Consumer-benefiting exclusive territories," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 1007-1025, November.
    21. Antonio Acconcia & Riccardo Martina & Salvatore Piccolo, 2008. "Vertical Restraints Under Asymmetric Information: On The Role Of Participation Constraints," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 379-401, June.

    More about this item

    Keywords

    vertical restrictions; vertical integration; manufacturing sector.;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

    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:vig:wpaper:0607. 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: Departamento de Economía Aplicada (email available below). General contact details of provider: https://edirc.repec.org/data/deviges.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.