Introduction to distribution

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CHAPTER I

INTRODUCTIONTODISTRIBUTION

Our economy depends onourabilitytodistributegoods and services.

As technology advancesand our productive capabilities become more

sophisticated, usershaveevermorespecializedneeds.Theability of our

societytomeet those needsisone of the important factorsin our abilityto

increaseconsumerwelfare.

In addition tothetechnical and logisticalaspects of distribution, there

alsois a contractualside.Certaintypes of agreementsmayfacilitate

efficientdistribution, and othertypesmay impede distribution efficiency,

or distributeonly attheprice of extracting excessivecostsfrom one part

of thedistribution chain. In addition, mostsocietieshaveviewsastowhat

they consider “fair”practicesin distribution, whether or not thosepractices

would be considered optimallyefficient.

The varietyof distributionarrangementsrangefromcomplete

ownership (vertical integration), suchas a firmsellingdirectlythrough the

Internet orthroughitsownretailoutlets,toarm’s-length salesinan open

or spotmarket.Betweenthese polar casesarequasi-verticalintegration

arrangementsthatlinksellersanddealersthroughcontractualandnon-

contractual agreements,whichincludeexclusivedealing, franchising,

resalepricemaintenance,tying, and exclusiveterritories.Whenthecosts

and benefits of distribution through verticalintegrationare not favorable,

thesetypesofquasi-integration through contractscanachievesome of the

benefits ofassetownership andmoreefficientdistribution, suchas

aligning conflicting interests of manufacturers andtheirdealersor

manufacturers and their suppliers.

The antitrustlawsservetotranslatesociety’s expectations into a setof

rulesthataffectcertainaspectsofdistributionpracticesintheUnited

States—and inmostareasof the world. Thereisgeneralacceptancethat a

sellerand buyer canagreetomost contractual requirements aspart of a

distribution arrangement.Buteverycontractlimits freedom to a certain

extent,and the antitrustlawsattempttoaddresswhichcontractual

limitationsareacceptable and whicharenot.Or,to use thegenerally

acceptedantitrustterms,whichlimitations pose an unreasonable restraint

on competition and whichlimitationsareconsideredreasonable.

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