Asymmetric Product Line and Multi-Homing

Abstract

This paper examines vertical relationships in which a monopolistic upstream producer supplies a product through downstream distributors to consumers who may access multiple distributors (i.e., multi-homing). Given that there are multi-homing consumers, exclusive supply of a product induces more consumers to multi-home than non-exclusive supply. Consequently, the upstream firm deals with only one of the distributors exclusively without any contractual arrangements. We also show that forcing non-exclusive supply on the producer may worsen welfare as a result of the reduction of multi-homing consumers.