Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory

RAND J. OF ECONOMICS, Vol. 26 No. 1

Posted: 13 Jul 1998

See all articles by David Martimort

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Abstract

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

Martimort, David, Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory. RAND J. OF ECONOMICS, Vol. 26 No. 1. Available at SSRN: https://ssrn.com/abstract=7104

David Martimort (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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