On the Welfare Effects of Exclusive Distribution Arrangements

Eichberger, Jürgen and Mueller-Langer, Frank (2012): On the Welfare Effects of Exclusive Distribution Arrangements.

Abstract

The regulation of vertical relationships between firms is the subject of persistent legal and academic controversy. The literature studying vertical trade relationships seems to assume that an upstream monopolist prefers downstream competition over exclusive distribution arrangements. We derive precise conditions for when an upstream monopolist prefers competing distribution systems over exclusive distribution in the downstream market. We also show that the welfare effects of downstream competition are ambiguous. A downstream oligopoly may have negative welfare properties compared to a downstream monopoly.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exclusive distribution; Competing distribution; Vertical foreclosure; Cournot competition
• Subjects: F - International Economics > F1 - Trade > F10 - General; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts; D - Microeconomics > D4 - Market Structure, Pricing, and Design; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies

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