Price and non-price restraints when retailers are vertically differentiated

Research output: Contribution to journalArticlepeer-review

Abstract

We consider an intrabrand competition model with a single manufacturer (M) and two vertically differentiated retailers. We show that when markets cannot be vertically segmented and the cost difference between the retailers is not too large, M will foreclose the low quality retailer. When markets can be vertically segmented, M will impose customer restrictions and assign consumers with low (high) willingness to pay to the low (high) quality retailer. This restriction benefits M and consumers with low willingness to pay (including some who are forced to switch to the low quality retailer), but harms consumers with high willingness to pay.

Original languageEnglish
Pages (from-to)923-947
Number of pages25
JournalInternational Journal of Industrial Organization
Volume21
Issue number7
DOIs
StatePublished - Sep 2003

Keywords

  • Customer restrictions
  • Exclusive distribution
  • Resale price maintenance
  • Vertical foreclosure
  • Vertical restraints

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