NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Vertical Restraints and Producers' Competition

Patrick Rey, Joseph E. Stiglitz

NBER Working Paper No. 2601 (Also Reprint No. r1351)
Issued in May 1988

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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Document Object Identifier (DOI): 10.3386/w2601

Published: European Economic Review, Vol. 32, pp. 561-568, (1988). citation courtesy of

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