Vertical Territorial Restrictions and Public Policy: Theories and Industry Evidence

Shantanu Dutta, Jan B. Heide, Mark Bergen

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


Territorial restrictions long have been the subject of intense policy debate. The central issue in this debate has been whether such distribution arrangements are deployed for efficiency or anticompetitive purposes. The authors add to the debate by broadening the existing conceptualization of business efficiency and providing evidence of the importance of efficiency considerations in the decision to deploy restrictions. In the past, efficiency often has been viewed narrowly, in terms of giving distributors incentives to provide free-rideable services. The authors show that information asymmetry and transaction costs also represent important efficiency-based explanations of territorial restrictions. With regard to anticompetitive concerns, their results show that manufacturers are more likely to use territorial restrictions when they face competition ex ante. Ultimately, this may reduce interbrand competition. From a public policy perspective, their pattern of results supports the current rule of reason treatment of territorial restrictions in the United States. At the same time it questions the current European policy of per se illegality.

Original languageEnglish (US)
Pages (from-to)121-134
Number of pages14
JournalJournal of Marketing
Issue number4
StatePublished - Oct 1999

Bibliographical note

Funding Information:
The authors thank the Carlson School of Management, University of Minnesota; Marshall School of Business, University of Southern California; and the School of Business, University of Wisconsin, Madison, for financial assistance with this project. The article has benefited from comments made during presentations at University of Chicago, University of Cincinnati, University of Illinois, Notre Dame University, and the Marketing Science Conference in Tucson. The authors also acknowledge the helpful comments of the four anonymous JM reviewers. The authors are listed in random order. All contributed equally to the article.

Publisher Copyright:
© 1999 American Marketing Association.


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