Rev Ind Organ (2007) 31:155–168
Quasi-Partnerships in Distribution
David E. Mills
Published online: 11 October 2007
© Springer Science+Business Media, LLC. 2007
Abstract This paper concerns the sale of a vertically differentiated good by
a manufacturer to retailers that have market power when reselling to consum-
ers. The contractual relationships between the manufacturer and individual
retailers are characterized as “quasi-partnerships,” reﬂecting the ongoing and
multi-dimensional nature of such relationships. Contractual terms are predicted
by the Nash bargaining solution and are distinguished from those in an ordinary
bilateral monopoly because they make allowance for competing, vertically dif-
ferentiated brands. The model predicts that differences in retailers’ ability to
promote the manufacturer’s brand induce prices that vary systematically with
the manufacturer’s market share of retailers’ sales.
Keywords Bargaining · Distribution · Market Share Discounts · Vertically
Much of the sales activity in distribution channels occurs between buyers and
sellers who, because of their size or product differentiation, have some degree of
market power. For example, Business Week reported in 2003 that Wal-Mart, the
world’s largest retailer, was responsible for 24 percent of Del Monte Foods’ sales
and 23 percent each of Clorox’s and Revlon’s cosmetics sales.
Del Monte, Clo-
rox, and Revlon are themselves major competitors in their respective markets.
www.businessweek.com:/print/magazine/content/03_40/b3852001_mz001.htm, October 6, 2003.
D. E. Mills (
Department of Economics, University of Virginia, P.O. Box 400182 Charlottesville, VA 22904-