Regulating vertical relations in the presence of retailer differentiation costs

Barreda, I. and Georgantzis, N. (2002) Regulating vertical relations in the presence of retailer differentiation costs. International Review of Law and Economics, 22 (3). pp. 227-256. ISSN 0144-8188 doi: 10.1016/S0144-8188(02)00100-X

Abstract/Summary

We discuss public policy towards vertical relations, comparing different types of contracts between a manufacturer and a maximum of two retailers. Together with (potential) price competition between the retailers, we study the role of a (sunk) differentiation cost paid by them in order to relax competition in the retail market and broaden the market potential of the distributed product. This non-price competition element in the downstream market is responsible for our conclusion that, unlike in standard policy guidelines and previous theoretical analysis, restrictions in intra-brand competition may deserve a permissive treatment even in the absence of inter-brand competition, if retailer differentiation is costly.