Producer Opportunism in Retailing Contracts

Mathias Dewatripont and Khalid Sekkat

Journal of Industrial Economics, 1991, vol. 39, issue 5, 595-620

Abstract: This paper analyzes the role of ex post producer opportunism on the optimal design of vertical restraints. It considers vertical contracts as starting points of ex post renegotiation. It shows that the alleged room for franchisor opportunism that seems quite important in franchising contracts can be seen as an insurance device when part of the goal of the contract is to provide a stable payoff to the franchisee. This conclusion holds for various opportunistic strategies: direct eviction of initial retailers, excessive entry of new retailers on the market, or resale price maintenance used to encourage "voluntary" exit of initial retailers. Copyright 1991 by Blackwell Publishing Ltd.

Date: 1991
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