Abstract
This paper concerns the sale of a vertically differentiated good by a manufacturer to retailers that have market power when reselling to consumers. The contractual relationships between the manufacturer and individual retailers are characterized as “quasi-partnerships,” reflecting the ongoing and multi-dimensional nature of such relationships. Contractual terms are predicted by the Nash bargaining solution and are distinguished from those in an ordinary bilateral monopoly because they make allowance for competing, vertically differentiated brands. The model predicts that differences in retailers’ ability to promote the manufacturer’s brand induce prices that vary systematically with the manufacturer’s market share of retailers’ sales.
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