DUOPOLISTIC VERTICAL RESTRAINTS

In an industry where competition exists at the wholesale level, vertical restraints are not necessarily desirable from the standpoint of the manufacturers. When vertical restraints are employed, it is never in the form of Retail Price Maintenance, but rather in the form of Franchise Fee pricing. When the products produced by the manufacturers are only slightly differentiated, the producers may benefit from the double marginalization that arises with linear pricing. Such double marginalization results in higher retail prices which relieve competitive pressures. © 1991.