Vertical Contracts as Strategic Commitments: How are They Enforced?

Journal of Economics & Management Strategy, Vol. 4, pp. 623-649, 1995

Posted: 31 Aug 2011

See all articles by Cindy R. Alexander

Cindy R. Alexander

Securities and Exchange Commission (SEC)

David Reiffen

U.S. Commodity Futures Trading Commission (CFTC)

Date Written: 1995

Abstract

This paper addresses the strategic commitment value of various price and nonprice vertical contracts. Assuming contract offers are sufficiently public to have strategic importance, we focus on commitment as a necessary and separable condition to be met. The analysis has two components. First, considering the relationship between a monopolist manufacturer and his imperfectly competing retailers, enforcement conditions necessary for alternative vertical contracts to have commitment value are identified in the static (reputation-free) context. It is shown that external help (i.e., enforcement by nonsignatories) is necessary for bilateral minimum resale price maintenance (price floors) and exclusive territory contracts to have commitment value, whereas maximum resale price maintenance (price ceilings) do not require such help (i.e., they are internally enforcing). Second, the paper provides an analysis of the U.S. case law and discusses the empirical validity of the “external enforcement” assumption that is shown to underlie recent proposals to make certain vertical restraints illegal.

Keywords: Contracts, Enforcement

JEL Classification: L14

Suggested Citation

Alexander, Cindy R. and Reiffen, David, Vertical Contracts as Strategic Commitments: How are They Enforced? (1995). Journal of Economics & Management Strategy, Vol. 4, pp. 623-649, 1995 , Available at SSRN: https://ssrn.com/abstract=1919966

Cindy R. Alexander (Contact Author)

Securities and Exchange Commission (SEC) ( email )

Washington
United States

David Reiffen

U.S. Commodity Futures Trading Commission (CFTC) ( email )

Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
429
PlumX Metrics