Introduction to distribution

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CHAPTER I

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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