Advertising as Special Service Provision Under Non-Price Vertical Restraints. Exclusive Territories in Beer Distribution

Document Type

Article

Publication Date

4-1-1996

Department

Marketing and Fashion Merchandising

Abstract

The article reviews the work of economist Lester Telser's 1960 hypothesis, describing the evolution of non-price vertical restraints. When vertical restraints are made illegal, intrabrand competition results, which diminishes the provision of point-of-sale, special services. There have been many lasting disputes among economists concerning the role and market outcomes of a certain type of vertical integration in industries, non-price vertical restraints. Telser presents the two most common arguments concerning these types of market restraints. The special services argument examines the conditions of sale for certain goods, where not only the purchase price is important but sales assistance through advertising, promotions and product innovations are important. The cartel argument discounts any utility gained by consumers in transactions, while emphasizing vertical restraints as monopolistic agreements between manufacturers and distributors to earn economic profits. Because the industry chooses vertical restraints, it appears that this form of vertical integration in the beer market is demonstrably superior. Vertical restraints also allow for a better control of resale price maintenance and the maximization of producer profits and consumer utility in markets where it is allowed to exist.

Publication Title

Applied Economics

Volume

28

Issue

4

First Page

433

Last Page

439

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