Inter- and intrabrand competition and the manufacturer-retailer relationship

This paper analyses manufacturers' choice of vertical arrangement with reta ilers. We focus on two types of vertical arrangement; exclusive dealing and exclusive territory. Both are used by manufacturers as instruments to redu ce competition between manufacturers. Exclusive dealing is used to avoid a head-to-head competition with other brands within a retail outlet. Thus, it restricts interbrand competition. Exclusive territory is used to eliminate intrabrand competition. Our results show that the choice of vertical arran gement depends on the degree of product substitution. When products are les s substitutable, in other words, the interbrand rivalry is weak. manufactur ers prefer to sell brands to a large number of competitive retailers. When the interbrand rivalry is strong, exclusive territory with exclusive dealin g might be adopted by manufacturers. Wt: derive welfare and antitrust polic y implications.