Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory
RAND J. OF ECONOMICS, Vol. 26 No. 1
Posted: 13 Jul 1998
What are the costs and benefits of exclusive dealing and why do manufacturers choose to organize their retailing markets in this way instead of taking a common retailer? This article traces back the benefits of this organizational form of distribution to the provision of incentives in a setting of competing manufacturer-retailer hierarchies under adverse selection. It first develops a theoretical model that studies competition between hierarchies under the assumption of secret wholesale contracts. Second, it analyzes a game of choice of retailing channels between rival manufacturers. Depending on the extent of the adverse selection problem and on the complementarity or substitutability of their brands, manufacturers prefer to use either a common or an exclusive retailer.
JEL Classification: L81
Suggested Citation: Suggested Citation