experimental gasoline markets abstract zone pricing in wholesale gasoline markets is a contentious topic in the public policy debate with a controlled laboratory experiment we investigate the competitive effects of zone pricing on consumers retail stations and refiners vis a vis the proposed policy prescription of uniform wholesale pricing to retailers we also examine the issue of divorcement and the rockets and feathers phenomenon the former is the legal restriction that refiners and retailers cannot be vertically integrated and the latter is the perception that retail gasoline prices rise faster than they fall in response to random walk movements in the world price for oil

downstream merger and welfare in a bilateral oligopoly i analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents firms or unions bargaining outcomes can be observable or unobservable by rivals when competition is in quantities upstream agents are independent and bargaining is over a uniform input price a merger between downstream firms may raise consumer surplus and overall welfare however when competition is in prices or the upstream agents are not independent or bargaining is over a two part tariff or bargaining covers both the input price and the level of output the standard welfare results are restored a downstream merger always reduces consumer surplus and overall welfare

vertical antitrust policy as a problem of inference the legality of nonprice vertical practices in the u s is determined by their likely competitive effects an optimal enforcement rule combines evidence with theory to update prior beliefs and specifies a decision that minimizes the expected loss because the welfare effects of vertical practices are theoretically ambiguous optimal decisions depend heavily on prior beliefs which should be guided by empirical evidence empirically vertical restraints appear to reduce price and or increase output thus absent a good natural experiment to evaluate a particular restraint s effect an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive

upgrading in global value chains lessons from latin american clusters it has been shown that clustering helps local enterprises in industrial districts overcome growth constraints and compete in distant markets in advanced and less developed countries nevertheless recent contributions have stressed that more attention needs to be paid to external linkages and to the role played by global buyers to foster upgrading at cluster levels in this study we contribute to this debate focusing on the analysis of the relationships existing between clustering global value chains upgrading and sectoral patterns of innovation in latin america we find that sectoral specificities matter and influence the mode and the extent of upgrading in clusters integrated in global value chains

resale price maintenance and collusion the article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude we analyze the scope for collusion with and without resale price maintenance rpm when retailers observe local shocks on demand or retail costs in the absence of rpm retail prices react to retailers information and deviations from collusive behavior are thus difficult to detect by eliminating retail price flexibility rpm facilitates the detection of deviations but reduces profits and thus increases the short run gains from a deviation overall rpm can facilitate collusion and reduce total welfare when firms adopt it

the role of exclusive territories in producers competition reprinted in cartels stephen salant ed the international library of critical writings in economics edward elgar reference collections

endogenous vertical restraints in international trade abstract this paper examines interbrand competition between a domestic and a foreign manufacturer who market their products through intermediaries the contracts manufacturers offer these intermediaries are endogenous in equilibrium contracts may specify exclusive territories et depending on the degree of substitutability between products and the level and degree of transparency of trade barriers trade liberalization through lower or more transparent barriers may lead manufacturers to use et thereby substituting private anti competitive arrangements for government imposed barriers this substitution may decrease competition and welfare and thus create a role for competition policy in a freer trade environment

common marketing agency as a device for facilitating collusion in a variety of markets firms voluntarily and independently delegate control over certain aspects of marketing to common agents in this article we present an explicit model of agency delegation where firms noncooperatively select agents name output prices and choose compensation schemes we exhibit an equilibrium in which all strategic variables not merely the marketing choices delegated to agents but prices as well are selected perfectly cooperatively this cooperative equilibrium is very simple and attractive each firm sets the collusive output price and employs a commission scheme to compensate the agent although each

the effectiveness of anti smoking legislation a review abstract this survey focuses on government efforts to curb the use of undesirable goods notably tobacco products we synthesize the economics literature and examine the effectiveness of government curbs on tobacco consumption through non price controls such as bans on cigarette advertising health warnings and workplace smoking bans and price measures or higher prices through higher taxes this literature review is unique in that we do not merely aim to provide a summary of the literature rather our main focus is to draw conclusions from the literature regarding the effectiveness of alternate policy measures across countries in checking smoking and to provide directions suggestions for extending the scope of government intervention to other tobacco products

assessing the consequences of a channel switch switching marketing channels is an expensive and sticky decision while a number of theories suggest efficiency and strategic differences between channels there is virtually no work on combining these ideas into an empirically workable methodology to assess the impact of a channel switch in this study we undertake to close this gap with an empirical study of the sports drink market featuring competing producers and heterogeneous channels we estimate demand and cost parameters for a number of alternative models of competitive interaction and use these estimates to study the switching of gatorade from its extant independent wholesaler channel to the direct store delivery dsd channel belonging to pepsi our initial results indicate the following pepsi should switch gatorade to the dsd channel only if i the switch decreases gatorade s manufacturing cost by at least 14 or ii the switch increases the share of profit it can obtain by at least 13 or iii the switch enhances demand by the equivalent of a price cut of 4 96 for a 32 ounces package absent these increases pepsi should not switch our methodology and results speak to both managers contemplating a channel switch and antitrust authorities faced with the task of evaluating the consequences of a change in vertical structure

costs and benefits of inducing intrabrand competition the role of limited liability when is inducing intrabrand competition via nonexclusive distribution an optimal strategy to address this issue a static model is developed to examine two settings the manufacturer uses exclusive distributors in the first setting and nonexclusive distributors in the second the analysis indicates that the choice of distribution rests critically on whether the manufacturer can effectively extract surplus from the distributors due to a variety of institutional reasons the distributors liability is often limited in performing on behalf of the manufacturer such limited liability restricts how much of the distributors surplus can be extracted when the distributors surplus cannot be fully extracted the manufacturer may prefer nonexclusive distribution even when distributors can free ride on each other s efforts

rational addiction with learning and regret we present a theory of rational behavior in which individuals maximize a set of stable preferences over goods with unknown addictive power the theory is based on three fundamental postulates that consumption of the addictive good is not equally harmful to all that individuals possess subjective beliefs concerning this harm and that beliefs are optimally undated with information gained through consumption although individual actions are optimal and dynamically consistent addicts regret their past consumption decisions and regret their initial assessment of the potential harm of the good addict prone individuals who believe it could not happen to them are most likely to be drawn into a harmful addiction

vertical integration and firm boundaries the evidence since ronald h coase s 1937 seminal paper a rich set of theories has been developed that deal with firm boundaries in vertical or input output structures in the last twenty five years empirical evidence that can shed light on those theories also has been accumulating we review the findings of empirical studies that have addressed two main interrelated questions first what types of transactions are best brought within the firm and second what are the consequences of vertical integration decisions for economic outcomes such as prices quantities investment and profits throughout we highlight areas of potential cross fertilization and promising areas for future work

exclusive territories and manufacturers collusion this paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains we show that with observable contracts exclusive territories have two countervailing effects on manufacturers incentives to sustain tacit collusion first granting local monopolies to retailers softens competition in a one shot game hence punishment profits are larger thereby rendering deviation more profitable second exclusive territories stifle deviation profits because retailers of competing brands adjust their prices to the wholesale contract offered by a deviant manufacturer whereas intrabrand competition prevents such instantaneous reaction we show that the latter effect tends to dominate thereby making exclusive territories a more suitable organizational mode to cooperate these insights are robust to endogenous communication between manufacturers we also consider retailers service investments here a novel effect emerges that softens the procollusive value of exclusive territories retailers of a deviant manufacturer increase investments which renders deviation more profitable this paper was accepted by preyas desai marketing

beer and the tie did divestiture of brewer owned public houses lead to higher beer prices in 1989 the united kingdom monopolies and mergers commission mmc recommended measures that eventually led brewers to divest themselves of 14 000 public houses the mmc claimed that their recommendations would lower retail prices and increase consumer choice since that time however retail prices have risen this paper contains an econometric analysis of the transition period the analysis is based on a model of the relationship between retail price and retail organisational form that emphasises how exclusive dealing clauses and strategic factors interact in 1989 in an important decision the united kingdom monopolies and mergers commission mmc recommended measures that eventually led brewers to divest themselves of 14 000 public houses the mmc claimed that their recommendations would lower retail prices and increase consumer choice there is considerable doubt however that their objectives were achieved indeed since the time that the recommendations were implemented retail prices have risen it is not clear however if prices would have increased in the absence of divestiture one goal of my research is to provide an answer to this question the mmc s recommendations created an exceptional opportunity to assess the effects that different contractual arrangements have on retail prices indeed one would like to investigate this relationship ceteris paribus unfortunately however the choice of vertical market structure is normally endogenous and it is impossible to condition on all of the factors that affect the contracting decision in the uk beer industry in contrast the government ordered changes in the type and terms of the contracts under which national brewers could operate their licensed premises increased separation between brewer and publican therefore was not due to changes in economic conditions moreover some premises the free houses that were not owned by a brewer were not affected by the beer orders the existence of a control group facilitates the analysis by strengthening the conclusions that one can draw in recent years economists have moved away from simple theories of vertical

vertical relationships and competition in retail gasoline markets empirical evidence from contract changes in southern california comment this study examines how much if any of the differences in retail gasoline prices between markets is attributable to differences in the composition of vertical contract types at gasoline stations in each market the purchase of the independent retail gasoline chain thrifty by arco provides a unique opportunity to examine the effects of changes in different vertical contract types on local retail prices this event caused sharp changes in the market share of i fully vertically integrated stations and ii independent stations differentially affecting local markets in the los angeles and san diego metropolitan areas using unique and detailed station level data this study examines how these sharp changes affected local retail prices the detailed data and the research design based on the thrifty station conversions allow for credible estimation of the effects of the market share of independent retailers and vertically integrated retailers on local market prices controlling for any omitted factors at the station level and the city level over time results for the los angeles and san diego metropolitan areas indicate that a decrease in the market share of independent stations has a significant positive impact on local retail price however a change in the market share of refiner owned and operated branded stations does not have a significant impact on local market price these results have important implications as policy makers consider the regulation of vertical contracts as a means to increase competition in gasoline markets the research design and detailed data also allow for inference on the underlying nature of retail gasoline competition

competing manufacturers in a retail supply chain on contractual form and coordination it is common for a retailer to sell products from competing manufacturers how then should the firms manage their contract negotiations the supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many possibly competing retailers we find that some key conclusions from those market structures do not apply in our setting where multiple manufacturers sell through a single retailer we allow the manufacturers to compete for the retailer s business using one of three types of contracts a wholesale price contract a quantity discount contract or a two part tariff it is well known that the latter two more sophisticated contracts enable the manufacturer to coordinate the supply chain thereby maximizing the profits available to the firms more importantly they allow the manufacturer to extract rents from the retailer in theory allowing the manufacturer to leave the retailer with only her reservation profit however we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale price contracts and this may leave them worse off and the retailer substantially better off in other words although in a serial supply chain a retailer may have just cause to fear quantity discounts and two part tariffs a retailer may actually prefer those contracts when offered by competing manufacturers we conclude that the properties a contractual form exhibits in a one manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer

the competitive effects of exclusive dealing evidence from the u s beer industry abstract several recent theoretical articles have modeled the effects of exclusive dealing contracts that restrict dealers to selling a single brand yet detailed empirical analysis of the impact of exclusivity on actual market outcomes has been lacking i analyze a unique set of firm level data on nearly 400 beer distributors in the united states the impacts of economies of scale and restrictions on distributor promotional activities on the use of exclusive dealing are measured as well as the effects of exclusivity on costs prices and output the results support the view that exclusive dealing serves to minimize manufacturer dealer incentive conflicts and enhances social welfare

resale price maintenance and interlocking relationships dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of rpm we analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers we show that rpm indeed limits the exercise of competition at both levels and can generate industry wide monopoly pricing the impact on prices depends on the extent of potential competition at either level as well as on the parties influence in determining the terms of the contracts our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies

a signaling based theory of contractual commitment to relationships abstract in this paper i present signaling as an explanation for how and why parties commit to relationships when they initially contract about the terms of those relationships two forms of contractual commitment to a relationship are considered a promise to trade in the future contracted quantity and a promise not to trade with anyone else contracted exclusivity a party is said to commit more to a relationship if it commits initially to trade a higher quantity and or to a higher level of exclusivity i characterize equilibrium contracts and therefore commitment both the ability to signal information through an exclusivity commitment and whether the informed party commits more to the relationship when the relationship is more likely to succeed depend on the source of the asymmetry of information

do slotting allowances harm retail competition slotting allowances are fees paid by manufacturers to get access to retailers shelf space both in the usa and europe the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists one school of thought claims that slotting allowances are efficiency enhancing while another school of thought maintains that slotting allowances are used in an anti competitive manner in this paper we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized using a formal model we show that there are good reasons to expect anti competitive effects of slotting allowances we further point out that competi tion authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances

resale price maintenance and restrictions on dominant firm and industry wide adoption abstract we consider a model in which firms use resale price maintenance rpm to dampen competition we find that even though the motive for using rpm is thus anti competitive market forces may limit the overall adverse impact on consumers indeed we find that when there are a large number of firms in the market consumer welfare under a laissez faire policy might be as high or almost as high as it would be under an alternative policy in which rpm is banned government interventions that put an upper limit on the extent of industry wide adoption of rpm can have adverse welfare effects in the model we further show that proposed guidelines in the united states and europe may come close to minimizing welfare

the strategic value of partial vertical integration we investigate the strategic incentives for partial vertical integration namely partial ownership agreements between manufacturers and retailers when retailers privately know their costs and engage in price competition with differentiated goods the partial misalignment between the profit objectives within a partially integrated manufacturer retailer hierarchy implies a higher retail price than under full integration this information vertical effect translates into a competition horizontal effect the partially integrated hierarchy s commitment to a higher price induces the competitor to increase its price which strategically relaxes competition our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions

chinese electronics export taiwanese contract manufacturing the win win outcome along the evolving global value chain the ascent of china as the world s top exporter is unusual in its rapidity andhigh tech content with a major portion in process trade by chinese classification forming part of the evolving global value chain with chronology andeconomic analysis applied to notions in frequent business usage but not economicsliterature this study shows the global value chain arose from the microelectronicrevolution known as moore s law evolved under the time tomarketimperative and caused widespread outsourcing in america and europe with final stage production mostly in china by taiwanese contract manufacturers the insight gained may help to assess future trends

upstream horizontal mergers vertical contracts and bargaining abstract we study horizontal mergers in the upstream sectors of vertically related industries when bargaining is present and contract types are endogenous we demonstrate that the contract types used can have significant implications for the equilibrium market structure and vice versa when trading takes place through two part tariff contracts merger incentives are absent however when the downstream firms are powerful merger incentives are restored since the merger leads then either to the exclusive or to the partial use of wholesale price contracts finally we show that whenever a merger occurs it is welfare detrimental

taxes cost and demand shifters as determinants in the regional gasoline price formation process evidence from spain abstract this paper examines the pass through of regional tax changes and spot price variations to regional gasoline prices in spain it also analyzes the impact of all major cost and demand shifters that contribute to regional gasoline price formation to address these research issues a reduced form price equation using monthly time series cross sectional tscs data from january 2004 through december 2008 is estimated strong and consistent evidence of full shifting of regional tax changes to regional gasoline prices is found gasoline spot price changes are more than proportionally passed through to retail prices in addition the empirical evidence shows on the one hand that regional gasoline price differences before taxes continue to be quite narrow and on the other hand that there is still a margin for larger gasoline price differences among regions this suggest that traditional practices from the monopoly era i e relatively uniform regional gasoline prices persist after the market has been liberalized which may have been facilitated by the strong and uniform presence of the major spanish based refining companies in the retail sector over the whole country

vertical separation with private contracts we consider a manufacturer s incentive to sell through an independent retailer rather than directly to final consumers when contracts with retailers cannot be observed by competitors if retailers conjecture that identical competing manufacturers always offer identical contracts symmetric beliefs manufacturers choose vertical separation in equilibrium even with private contracts vertically separated manufacturers reduce competition and increase profits by inducing less aggressive behaviour by retailers in the final market manufacturers profits may be higher with private than with public contracts our results hold both with price and with quantity competition and do not hinge on retailers beliefs being perfectly symmetric we also discuss various justifications for symmetric beliefs including incomplete information

mergers brand competition and the price of a pint abstract mergers in the uk brewing industry have reduced the number of national brewers from six to four the number of brands in contrast has remained relatively constant we analyze the effects of mergers on brand competition and pricing brand level demand equations are estimated from a panel of draft beers to model brand substitution possibilities we estimate the matrix of cross price elasticities semiparametrically our structural model is used to assess the strength of brand competition along various dimensions and to evaluate the mergers in particular we compute equilibria of pricing games with different numbers of players

deregulation and strategic complements japanese gasoline market the purpose of this article is to provide an explanation for the success of deregulation implemented in the japanese oil industry by investigating the economic norm in japanese gasoline market namely how a firm expects its rivals to react when the firm changes its output decisions using the conjectural opponent s reaction this article investigates whether the economic norm in japanese gasoline market is strategic complements or strategic substitutes it is found that the economic norm in the japanese gasoline market over the period 1992 to 2003 is strategic complements that is do it since everyone else is doing it it is suggested that some of the fall in gasoline prices said to result from successful deregulation should really be attributed to the production expansion derived from this strategic complementarity

retailer power recent developments and policy implications retailing is big business ranking firms by revenue retailing includes belgium s largest company delhaize le lion tesco and j sainsbury from the uk top ten the giant metro group in germany and wal mart stores number four in the usa and the eighth largest company in the world with 119 billion turnover and 825 000 employees fortune 3 8 98 retailing is getting more concentrated over time the top ten grocers in europe were 28 of the market in 1992 but 36 by 1997 1 the behaviour of retailers matters for consumers cross country studies of pricing for near identical products e g cars televisions compact discs branded sportswear groceries find big differences between prices across european countries and between europe and the usa 2 the european commission is to start examining why europeans pay substantially more on average than us consumers

strategic incentives when supplying to rivals with an application to vertical firm structure abstract we consider a vertically integrated input monopolist supplying to a differentiated downstream rival with linear input pricing at the margin the firm unambiguously wants the rival to expand unlike standard oligopoly with no supply relationship for either cournot or bertrand competition with a two part tariff for the input the same result holds if downstream choices are strategic complements but is reversed for cournot with strategic substitutes we analyze vertical delegation as one mechanism for inducing expansion or contraction by the rival customer

smoking initiation and the iron law of demand we show with three longitudinal datasets that cigarette taxes and prices affect smoking initiation decisions evidence from longitudinal studies is mixed but generally find that initiation does not vary with price or tax we show that the lack of statistical significance partly results because of limited policy variation in the time periods studied truncated behavioral windows or mis assignment of price and tax rates in retrospective data which occurs when one has no information about respondents prior state or region of residence our findings highlight issues relevant to initiation behavior generally particularly those for which individuals responses to policy changes may be noisy or small in magnitude

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

endogenous market structures and contract theory delegation principal agent contracts screening franchising and tying abstract i study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry traditional results change substantially when the market structure is endogenous rather than exogenous they concern 1 contracts of managerial delegation to non profit maximizers 2 incentive principal agent contracts in the presence of moral hazard on cost reducing activities 3 screening contracts in case of asymmetric information on the productivity of the managers 4 vertical contracts of franchising in case of hold up problems and 5 tying contracts by monopolists competing also in secondary markets firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry

strategic behaviour of incumbent firms in the uk abstract the main purpose of this paper is to examine the incidence of strategic behaviour in the uk by means of a questionnaire study performed across three broad manufacturing industries food electrical engineering and chemicals of the strategies which have received substantial theoretical attention r d and advertising appear widely used patenting pricing and excess capacity much less so vertical instruments such as purchasing policy also stand out as important but possibly only a minority of firms in our sample actively pursue strategic instruments

exclusive dealing as a barrier to entry evidence from automobiles exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market we ask whether such contracts may act as an entry barrier and provide an empirical analysis of the european car market we first estimate a demand model with product and spatial differentiation and quantify consumers valuations for dealer proximity and dealer exclusivity we then perform policy counterfactuals to assess the profit incentives and possible entry deterring effects of exclusive dealing we find that there are no unilateral incentives to maintain exclusive dealing but there is a collective incentive for the industry as a whole furthermore a ban on exclusive dealing would raise the smaller entrants market share but more importantly consumers would gain not so much because of increased price competition but rather because of the increased spatial availability which compensates for the demand inefficiency from a loss of dealer exclusivity

the agency model and mfn clauses i provide an analysis of vertical relations in markets with imperfect competition at both layers of the supply chain and where exchange is intermediated either with wholesale prices or revenue sharing contracts revenue sharing is extremely attractive to firms that are able to set the revenue shares but often makes the firms that set retail prices worse off this is so whether revenue sharing lowers or raises industry profits these results are strengthened when a market moves from the wholesale model of sales to the agency model of sales which results in retailers setting revenue shares and suppliers setting retail prices i also show that retail price parity restrictions raise industry prices these results provide a potential explanation for why many online retailers have adopted the agency model and retail price parity clauses

vertical integration foreclosure and productive efficiency we analyze the consequences of vertical integration by a monopoly producer dealing with two retailers downstream firms of varying efficiency via secret two part tariffs when integrated with the inefficient retailer the monopoly producer does not foreclose the rival retailer due to an output shifting effect this effect can induce the integrated firm to engage in below cost pricing at the wholesale level thereby rendering integration procompetitive output shifting arises with homogeneous and differentiated products moreover we show that integration with an inefficient retailer emerges in a model with uncertainty over retailers costs and this merger can be procompetitive in expectation

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

competitive pressure and the adoption of complementary innovations liberalization of the european automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints leading to a substantial increase in competitive pressure among dealers we estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation adoption strategies following the elimination of exclusive territories using french data we evaluate the existence of complementarities between the adoption of software applications and the scale of production firms view these innovations as substitutes and concentrate their effort in one type of software as they expand their scale of production results are robust to the existence of unobserved heterogeneity

the efficiency of competing vertical chains with network externalities abstract this paper compares vertical integration and vertical separation with network externalities contrary to conventional wisdom if network effects are stronger than the threshold level of the network externality parameter manufacturers strategic choices of wholesale prices move in opposite directions i e wholesale prices may be strategic substitutes under bertrand competition second if the strength of network effects is strong enough both profits and outputs are larger under vertical separation than under integration finally if network effects are strong weak outputs wholesale prices retail prices consumer surplus and social welfare are higher lower under separation than integration

buyer power from joint listing decision we consider a model of vertically related markets in which an upstream firm faces a competitive fringe of less efficient suppliers and negotiates with customers that compete in a downstream market we allow downstream firms to form a buyer group which selects suppliers on behalf of its members we show that transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member which in turn enhances the group members bargaining position at the expense of the upstream firm we also discuss the implication for upstream investment incentives

vertical integration as a source of hold up while vertical integration is traditionally seen as a solution to the hold up problem this article highlights instead that it can generate hold up problems for rivals we consider a successive duopoly where downstream firms invest and then secure support from an upstream supplier we first show that vertical integration generates ex ante incentives to create hold up problems an integrated supplier is willing to pre commit itself to appropriating or dissipating part of its customer s profits to expose the independent rival to being held up by the other supplier and discourage in this way the rival s investment we then show that even in the absence of any pre commitment vertical integration also creates hold up problems ex post when degrading the quality of the support provided to one downstream firm benefits its rival we also provide illustrations in terms of standard industrial organization models and of antitrust cases and discuss the robustness of the insights

vertical control and price cycles in gasoline retailing we examine norwegian gasoline pump prices using daily station specific observations from 2003 to 2006 the four big gasoline companies use a vertical restraint that is adopted industry wide labeled price support this moves price control from the hands of independent retailers into the hands of the headquarters retail gasoline prices follow a fixed weekly pattern where we observe de facto simultaneous decision making by the headquarters without knowledge of their rivals prices when every monday around noon they decide to increase pump prices to the same level the price level on mondays corresponds to the recommended prices published by the headquarters of the gasoline companies

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

entry and product variety with competing supply chains we study a model where an endogenous number of competing manufacturers located around a circle contract with exclusive retailers who are privately informed about their costs the number of brands in the market determined by the manufacturers zero profit condition depends on the presence of asymmetric information and on the types of contracts between manufacturers and retailers with two part tariffs wholesale prices fully reflect retailers costs with linear contracts wholesale prices are constant and independent of retailers costs the number of brands is lower resp higher with asymmetric information than with complete information when contracts are linear resp with two part tariffs moreover although the number of brands is always higher with linear contracts than with two part tariffs joint profits of manufacturers and retailers are higher with linear prices we also discuss manufacturers incentives to choose different contract forms and analyze the effects of endogenous entry on welfare

product market competition and boundaries of the firm this paper studies the effects of product market competition on firm boundaries in a duopoly setting each retailer is associated with a manufacturer who must decide how to allocate property rights over a retail asset delegating property rights over the retail asset to an indepedent retailer disintegration transfers incentives from the manufacturer to the retailer and has the benefit of increasing product quality and profits owing to the retailer s superior efficiency however it also forces the manufacturer to forfeit part of the profits competition increases the net benefit from delegation and leads to more efficient vertically disintegrated structures cet article etudie la concurrence sur le marche des produits et ses effets sur les limites de l entreprise dans un modele de duopole chaque producteur associea un distributeur choisit soit une structure verticale integree dans laquelle le distributeur est son employe soit une structure desintegree dans laquelle le distributeur est independant plus efficace en termes d incitations au distributeur la structure desintegree genere des profits joints plus importants elle oblige cependant le producteur a partager les profits avec le distributeur la concurrence augmente le benefice et reduit le cout de la desintegration favorisant ainsi des structures verticales desintegrees et efficaces

on intrabrand and interbrand competition the strategic role of fees and royalties abstract we examine oligopolistic markets with both intrabrand and interbrand competition we characterize equilibrium contracts involving a royalty or wholesale price and a fee when each upstream firm contracts with multiple downstream firms royalties control competition between own downstream firms at the expense of making them passive against rivals when the number of downstream firms is endogenous each upstream firm chooses to have only one downstream firm this result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments we discuss why allowing upstream firms to charge per unit payments in addition to fixed fees dramatically alters their strategic incentives

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

the economic theory of vertical restraints 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

an empirical analysis of territorial encroachment within franchised and company owned branded chains franchisees within large branded chains loudly complain of a form of channel conflict known as encroachment or impact encroachment occurs when franchisors add new units of their brand proximately to their franchisees existing units franchisees claim that their revenues have substantially decreased as a result of encroaching same brand entry the topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers yet until now evidence of encroachment has been strictly anecdotal this paper provides the first systematic evidence of encroachment using revenue data from the texas lodging industry in the 1990s i find that when franchisors approve new same brand units in the vicinity of incumbent units these new units cannibalize the incumbents revenues in contrast to the result for franchisors the addition of a new unit by company owned brands in the vicinity of same brand units is associated with an increase in the incumbents revenues this contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion this finding informs theory on governance forms and exclusive territories implications for practitioners and policy are also discussed