Equilibrium exclusive dealing in oligopoly

Abstract

This paper considers a setting in which upstream oligopolists delegate the retailing of their differentiated products to a set of undifferentiated retailing agents. The downstream market structure is assumed to consist of a set of independent agents that exclusively sell the product of a single manufacturer and a common agent that sells the product of many manufacturers. A three-stage game is considered. In the first stage the manufacturers choose whether to market their products using an independent agent or the common agent. In the second stage the manufacturers set the terms of the two-part tariff contract offered to their agents. In the final stage agents engage in either differentiated Bertrand or differentiated Cournot competition. If the agents engage in differentiated Cournot competition then the model shows that either all manufacturers employ independent agents, or they all employ the common agent. Which of these two equilibria emerge depend on the degree of product substitutability and on the number of manufacturers. If the agents engage in differentiated Bertrand competition, then a third type of equilibrium also emerges in which some firms employ the common agent and others employ independent agents.