Vertical Integration and Exclusivity Contracts when Consumers Have Switching Costs

Tommaso Valletti

Southern Economic Journal, 2004, vol. 71, issue 1, 36-59

Abstract: This article extends the literature on switching costs by considering what happens when retailers and manufacturers are separate entities and some customers are locked in with retailers. This separation introduces a dynamic inconsistency problem as manufacturers face the problem of extracting too much surplus from the retailer in which case the retailer has no incentive to build a subscriber base. It is shown that different trading relationships arise according to the nature and magnitude of switching costs. When switching costs are high, then integrated structures are always predicted (or exclusive dealerships in case vertical integration is banned). Vertical integration should be allowed as it provides high‐powered incentives to acquire market shares.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/j.2325-8012.2004.tb00622.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:71:y:2004:i:1:p:36-59

Access Statistics for this article

More articles in Southern Economic Journal from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().