Upfront payments and exclusion in downstream markets

Leslie M Marx, Greg Shaffer

Research output: Contribution to journalArticle

55 Citations (Scopus)

Abstract

Although upfront payments are often observed in contracts between manufacturers and retailers, little is known about their competitive effects or the role retailers play in securing them. In this article, we consider a model in which two competing retailers make take-it-or-leave-it offers to a common manufacturer. We find that upfront payments are a feature of equilibrium contracts, and in all equilibria, only one retailer buys from the manufacturer. These findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments. Copyright © 2007, RAND.
Original languageEnglish
Pages (from-to)823-843
Number of pages21
JournalRand Journal of Economics
Volume38
Issue number3
Publication statusPublished - 2007

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