On the Welfare Effects of Exclusive Distribution Arrangements
University of Heidelberg - Alfred Weber Institute for Economics
Max Planck Institute for Innovation and Competition
May 24, 2012
Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 12-07
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.
Number of Pages in PDF File: 14
Keywords: Exclusive distribution, Competing distribution, Vertical foreclosure, Cournot competition
Date posted: June 26, 2012
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