Introduction to distribution

Our economy depends on our ability to distribute goods and services.
As technology advances and our productive capabilities become more
sophisticated, users have ever more specialized needs. The ability of our
society to meet those needs is one of the important factors in our ability to
increase consumer welfare.
In addition to the technical and logistical aspects of distribution, there
also is a contractual side. Certain types of agreements may facilitate
efficient distribution, and other types may impede distribution efficiency,
or distribute only at the price of extracting excessive costs from one part
of the distribution chain. In addition, most societies have views as to what
they consider “fair” practices in distribution, whether or not those practices
would be considered optimally efficient.
The variety of distribution arrangements range from complete
ownership (vertical integration), such as a firm selling directly through the
Internet or through its own retail outlets, to arm’s-length sales in an open
or spot market. Between these polar cases are quasi-vertical integration
arrangements that link sellers and dealers through contractual and non-
contractual agreements, which include exclusive dealing, franchising,
resale price maintenance, tying, and exclusive territories. When the costs
and benefits of distribution through vertical integration are not favorable,
these types of quasi-integration through contracts can achieve some of the
benefits of asset ownership and more efficient distribution, such as
aligning conflicting interests of manufacturers and their dealers or
manufacturers and their suppliers.
The antitrust laws serve to translate society’s expectations into a set of
rules that affect certain aspects of distribution practices in the United
States—and in most areas of the world. There is general acceptance that a
seller and buyer can agree to most contractual requirements as part of a
distribution arrangement. But every contract limits freedom to a certain
extent, and the antitrust laws attempt to address which contractual
limitations are acceptable and which are not. Or, to use the generally
accepted antitrust terms, which limitations pose an unreasonable restraint
on competition and which limitations are considered reasonable.

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