11_6_08 lec 18

11_6_08 lec 18 - Vertical arrangements Outline of todays...

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Vertical arrangements Outline of today’s lecture Vertical arrangements and the spectrum of vertical control Rationale for vertical restraints in “distribution” When are vertical restraints anticompetitive? Vertical arrangements Contractual arrangements between vertically related firms o Distribution of manufactured goods Tommy Hilfiger clothing There is a sale behind the sale behind the sale etc. Books published by Random House Distributed to different bookstore etc. o Upstream/downstream production Cement/ready-mix concrete Vertical arrangements Vertical arrangements Two Two -stage distribution channels stage distribution channels M R Manufacturers Manufacturers Retailers Retailers Consumers Consumers Vertical Arrangements C Realistically you have a intervenening stage between M and R called “wholesalers” Various configurations…
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Case Case 1 M R R R R CONSUMERS Vertical Arrangements Vertical Arrangements Case 1 veritcal structure Not interested in relp between firm and competitors M gives product to a competing network of retailers All retailers are selling the same product made by M and sell it to consumers Case Case 2 M R R R R CONSUMERS Vertical Arrangements Vertical Arrangements Each R has a set of consumers that cannot easily purchase from another retailer Each retailer has some market power Just as M has some market power (some room to raise price above MC) But these firms don’t really compete against each other, they each have their own consumers…
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Case Case 3 M 1 R R R R CONSUMERS M 2 R R Vertical Arrangements Vertical Arrangements M has some market powers Large group of R competing against each other, each R sell both brand M1 and M2. Same network of retailers
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11_6_08 lec 18 - Vertical arrangements Outline of todays...

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