Abstract
An independent firm that is the sole distributor of an upstream monopoly supplier has a stronger incentive to discover and adopt cost-reducing innovations than would a competitive distribution industry bound to the same upstream supplier. This is true whether the downstream pricing behavior is Cournot or Bertrand, and whether the distributors’ rights to new innovations are exclusive or may be costlessly imitated. This represents a new efficiency-based explanation for manufacturer assignment of exclusive geographic territories to distributors. It can explain why a foreign manufacturer would designate a sole importer to be uniquely responsible for wholesale distribution of its product within the importing country.
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