The economic theory of quasi-exclusive territory

Abstract

This paper introduces the economic theory of gquasi-exclusive territory.h We consider vertical dealings with two upstream firms and four downstream firms that compete in two separate markets. Under quasi- exclusive territory, downstream firms are bound to pay additional charges when selling goods beyond their territorial areas. We find that with respect to the two-part tariffs comprising a marginal price and a fixed fee, quasi-exclusive territory is more beneficial for upstream firms and more harmful for consumers than conventional exclusive territory. Moreover, we note that quasi-exclusive territory is in practice in various vertical dealings and that its regulation is a difficult task.Exclusive territory, Quasi-exclusive territory, Vertical dealings, Two-part tariff