Resale Price Maintenance or Dealer Exclusive Territories? Toward a Theory of Product Distribution

Abstract

A theory of product distribution is presented by examining a manufacturer's choice between resale price maintenance (RPM) and dealer exclusive territories to solve the standard retail free riding problem. The choice depends critically on the life cycle of the product being distributed: manufacturers of products with long life cycles are more likely to distribute their products with exclusive territories, with RPM becoming more probable as the life cycle of the product shrinks. These results provide a link between a product's characteristics and the likely manner in which it is offered at retail.