A Note on the Profit Distribution among a Manufacturer and its Retailers

Abstract

Examining two polar forms of restricted franchise contract, Nariu (2004) studied the pricing behavior of manufacturers and retailers and the market outcomes. This note provides a concise justification for his assumptions on contractual restraints. Introducing some fixed amount that a manufacturer must invest to build up its production facility, we show that a bargaining solution to distribute the total net profit among a manufacturer and its exclusive retailers assigns zero franchise fee payment to any retailers, if the investment is not large.bargaining solution