[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

not Texaco or Sunoco. Like most refiners, Exxon requires stations that want to sell
only its brand of gasoline.
A third example of a restrictive practice is tie-ins, which force a customer who
buys one product to buy another. Mortgage companies, for example, used to insist
that those who obtained mortgages from them purchase fire insurance as well.
Nintendo designs its console so that it can be used with only Nintendo games. In
effect, it forces a tie-in sale between the console and the software. In the early days
of computers, IBM designed its computers so that they could be used only with IBM
“peripherals,” such as printers.
A final example is resale price maintenance. Under this restrictive practice, a
producer insists that any retailer selling his product must sell it at the “list” price.
Like exclusive territories, it is designed to reduce competitive pressures at the
retail level.
Consequences of Restrictive Practices Firms engaging in restrictive
practices claim they are doing so not because they wish to restrict competition but
because they want to enhance economic efficiency. Exclusive territories, they argue,
provide companies with a better incentive to “cultivate” their territory. Exclusive
dealing contracts, they say, provide incentives for firms to focus their attention on
one producer’s goods.
Despite these claims, restrictive practices often reduce economic efficiency.
Exclusive territories for beer, for example, have limited the ability of very large
firms, with stores in many different territories, to set up a central warehouse and
distribute beer to their stores more efficiently. And regardless of whether they
enhance or hurt efficiency, restrictive practices may lead to higher prices by
limiting competitive pressures.
Some restrictive practices work by increasing the costs of, or otherwise impeding,
one’s rivals. In the 1980s, several major airlines developed computer reservation
systems that they sold at very attractive prices to travel agents. If the primary goal
of these systems had been to serve consumers, they would have been designed to
display all the departures near the time the passenger desired. Instead, each airline’s
system provided a quick display for only its own flights—United’s, for instance, focused
on United flights—although with additional work, the travel agent could find out the
flights of other airlines. Airlines benefited from these computer systems not because
they best met the needs of the consumer, but because they put competitors at a
disadvantage and thereby reduced the effectiveness of competition.
An exclusive dealing contract between a producer and a distributor also exemplifies
how one firm may benefit from hurting its rivals. The contract might force a
rival producer to set up its own distribution system, at great cost, when the alreadyexisting
distributor might have been able to undertake the distribution of the second
product at relatively low incremental cost. The exclusive dealing contract increases
total resources spent on distribution.
Courts have responded inconsistently to these and similar practices—in some
circumstances ruling that they are illegal because they reduce competition, while
in others allowing them, having been persuaded that they represent reasonable
business practices.
280 ∂ CHAPTER 12 MONOPOLY, MONOPOLISTIC COMPETITION, AND OLIGOPOLY