| Vertical Contracts as Strategic Commitments Contributor(s): Penny Hill Press Inc (Editor), Federal Trade Commission (Author) |
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ISBN: 1523389478 ISBN-13: 9781523389476 Publisher: Createspace Independent Publishing Platform OUR PRICE: $12.30 Product Type: Paperback - Other Formats Published: January 2016 |
| Additional Information |
| BISAC Categories: - Business & Economics |
| Physical Information: 0.07" H x 8.5" W x 11.02" (0.23 lbs) 34 pages |
| Descriptions, Reviews, Etc. |
| Publisher Description: Recent literature has shown that when retailers cannot observe contracts between a manufacturer and their rivals, the manufacturer will be unable to obtain the vertically integrated profit using two-part tariff contracts alone. It has been suggested that vertical restraints, such as RPM and exclusive territories, are observable and thus permit the manufacturer to obtain profits closer to the vertically integrated level. Observability, however, is not sufficient. To serve as a strategic commitment mechanism, a vertical contract must be enforceable as well. We show that the vertical contracts that have been the focus of the recent literature are not self-enforcing but must be externally enforced. We find that in practice the enforceability condition has not been met. This suggests that models which rest on the premise that vertical restraints are strategic commitments do not provide general explanations of these practices. |