On the Welfare Effects of Exclusive Distribution Arrangements
14 Pages Posted: 26 Jun 2012
Date Written: May 24, 2012
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.
Keywords: Exclusive distribution, Competing distribution, Vertical foreclosure, Cournot competition
Suggested Citation: Suggested Citation