Exclusive Retailing

This paper studies the equilibrium incentives of an upstream manufacturer to adopt exclusive retailing (ER). ER eliminates disciplining intrabrand competition between retailers, gives the exclusive retailer market power and a higher retail margin. On the one hand, the additional margin gives the exclusive retailer larger incentives to invest in (procompetitive) brand-specific marketing. On the other hand, ER may serve as a (anticompetitive) commitment device for reduced interbrand competition and hence, higher prices and profits. Implications for competition policy are ambiguous. Whenever marketing investments play a prominent role or interbrand competition is rather tough, ER enhances welfare. Otherwise regulators should intervene.

Available at SSRN