EXCLUSIVE DEALING AND PRICE PROMOTIONS

by Rajiv Lal (Stanford University)
and
J. Miguel Villas-Boas (University of California at Berkeley, and Universidade Católica Portuguesa, Lisbon)
August 1995

ABSTRACT

We study retail price promotions and manufacturer trade deals in markets with exclusive dealing. We find that models that do not account for the existence of retailers overestimate the depth of promotions. We then compare the price promotions outcomes of markets with and without exclusive dealing. We also evaluate whether exclusive dealing can be an equilibrium outcome, and find that, under certain conditions of the model, the equilibrium is for manufacturers to distribute through several retailers even though their profits might end up lower than if each retailer carried only one product.

This work was supported by a grant from the Regents of the University of California to J. Miguel Villas-Boas. We gratefully appreciate comments on an earlier version of this paper by João Assunção, Marshall Freimer, Sridhar Moorthy, Duncan Simester, Birger Wernerfelt, and seminar participants at the University of Chicago and the University of Rochester.