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Vertical Contracts and Mandatory Universal Distribution

Author

Listed:
  • Karp Larry S.

    (Department of Agricultural and Resource Economics, University of California, 207 Giannini Hall, Berkeley, CA 94720, USA)

  • Perloff Jeffrey M.

    (Department of Agricultural and Resource Economics, University of California, 207 Giannini Hall, Berkeley, CA 94720, USA)

Abstract

An upstream monopoly that provides a new good to a downstream oligopoly might prefer to sell to a single rather than to multiple downstream firms. For example, Apple initially sold its iPhone through one vendor. If a monopoly uses a single vendor, the government may impose a mandatory universal distribution (MUD) requirement that forces the monopoly to sell to all downstream vendors. However, if the income elasticity of demand for the new good is greater than the income elasticity of the existing generic good, the MUD requirement leads to a higher equilibrium price for both the new good and the generic and lowers consumer welfare.

Suggested Citation

  • Karp Larry S. & Perloff Jeffrey M., 2013. "Vertical Contracts and Mandatory Universal Distribution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 595-626, October.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:2:p:595-626:n:16
    DOI: 10.1515/bejeap-2012-0073
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    References listed on IDEAS

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    Cited by:

    1. Henrik Vetter, 2017. "Pricing and market conduct in a vertical relationship," Journal of Economics, Springer, vol. 121(3), pages 239-253, July.

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    More about this item

    Keywords

    vertical restrictions; mandatory universal distribution; new product; oligopoly;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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