The Interaction of Manufacturer and Retailer Expenditure on Image

Lisa Finneran

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper re-examines the Telser services externality for the case where services required of retailers by manufacturers involve provision of image. It is argued that refusal to supply retailers who attempt to free-ride may be the only vertical restraint which can ensure provision of the services required by the manufacturer. We consider how the existence of a vertical extrnality in image expenditure will affect a manufactuer's choice of such expenditure if the manufacturer's freedom to select retailers is limted (for example by competition policy). We find that whether the manufacturer attempts to compensate or not for a negative image on the part of the outlets supplying his product will depend on returns to scale in both expenditure and on how substitutable is manufacturer image expenditure for retailer expenditure.

Keywords: vertical relationships; Telser Services externality; image; advertising (search for similar items in EconPapers)
Pages: 20 pages
Date: 1996
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