Exclusive dealing in a spatial model of retail competition

David Besanko*, Martin K. Perry

*Corresponding author for this work

Research output: Contribution to journalArticle

29 Scopus citations

Abstract

This paper analyzes exclusive dealing in a model with brand differentiation by manufacturers and spatial differentiation by retailers. Exclusive dealing is shown to generate higher profits for manufacturers, who thus have an incentive to insist on exclusive dealing. Exclusive dealing also results in higher prices and higher transportation costs for consumers. However, exclusive dealing may still increase total surplus because it reduces the fixed costs of retailing. If so, the comparison with non-exclusive dealing becomes difficult because these lower fixed costs induce entry of additional retailers, reducing the retail margin and consumer's transportation costs. Numerical analysis suggests that total surplus is likely to increase with exclusive dealing when there are substantial reductions in the fixed costs of retailing.

Original languageEnglish (US)
Pages (from-to)297-329
Number of pages33
JournalInternational Journal of Industrial Organization
Volume12
Issue number3
DOIs
StatePublished - Sep 1994

Keywords

  • Brand differentiation
  • Exclusive dealing
  • Spatial differentiation

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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