Exclusive Dealing Intensifies Competition for Distribution
Kevin M. Murphy
University of Chicago; National Bureau of Economic Research (NBER)
University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon
Antitrust Law Journal, Vol. 75, No. 2, 2008
Manufacturer competition for retail distribution is shown to often include partially exclusive contracts when competitive retailers have the ability to shift sales by loyal customers to a chosen manufacturer. Since each manufacturer knows its sales will increase substantially at the expense of rival brands if selected for partial exclusivity by the retailer, manufacturers will reduce their wholesale prices in the attempt to be selected. Inter-retailer competition will then largely pass the lower wholesale prices on to consumers in lower retail prices. Retailers can be thought of as acting as agents for their loyal consumers, trading off reduced product variety for price reductions preferred by their consumers as a group. The economic analysis provides a procompetitive justification for restricted distribution arrangements in the supermarket industry that have been the subject of antitrust litigation, and can be used to explain restricted distribution arrangements in the economy more generally.
Number of Pages in PDF File: 34
Keywords: exclusive dealing
JEL Classification: L42, K21
Date posted: July 9, 2011
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