Working Paper: NBER ID: w2601
Authors: Patrick Rey; Joseph Stiglitz
Abstract: 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.
Keywords: vertical restraints; producers competition; exclusive territories; anticompetitive effects
JEL Codes: L41; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exclusive territorial arrangements (L14) | higher consumer prices (D19) |
| vertical restraints (L42) | facilitate collusion among producers (L12) |
| facilitated collusion (L12) | higher prices (D49) |
| facilitated collusion (L12) | reduced competition (L19) |
| exclusive arrangements (L14) | joint profits (D33) |
| joint profits (D33) | harm consumers (D18) |