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THE ECONOMIC THEORY OF VERTICAL RESTRAINTS
Author(s) -
Secrieru Oana
Publication year - 2006
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2006.00269.x
Subject(s) - vertical restraints , resale price maintenance , franchise , upstream (networking) , economics , vertical integration , market power , bargaining power , downstream (manufacturing) , consumer welfare , industrial organization , microeconomics , unit (ring theory) , welfare , market structure , business , market economy , marketing , monopoly , operations management , computer network , mathematics education , mathematics , incentive , computer science
The types of contracts arising in a typical vertical manufacturer–retailer relationship are more sophisticated than a simple uniform price. In addition to setting per unit prices, manufacturers and retailers also revert to non‐linear pricing and non‐price instruments. These instruments or contracts are referred to as vertical restraints and can take the form of franchise fees, resale‐price maintenance, exclusive dealing, exclusive territories and slotting allowances. The use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers. This paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices, market structure, efficiency and welfare.