Vertical Restraints and Producers' Competition

20 Pages Posted: 5 Jul 2004 Last revised: 12 Aug 2010

See all articles by Patrick Rey

Patrick Rey

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: May 1988

Abstract

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.

Suggested Citation

Rey, Patrick and Stiglitz, Joseph E., Vertical Restraints and Producers' Competition (May 1988). NBER Working Paper No. w2601. Available at SSRN: https://ssrn.com/abstract=428349

Patrick Rey

Toulouse School of Economics ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Joseph E. Stiglitz (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
77
Abstract Views
1,352
rank
312,157
PlumX Metrics