Common Agency and Exclusive Dealing in a Differentiated Duopoly

The paper analyzes whether two manufacturers competing in prices should market their products through exclusive dealers or through a common agent. Manufacturers and dealers have symmetric information. Howerver, we assume that lack of observability/verifiability of the agents' total profits prevents manufacturers from appropriating the profits that the agent obtains from rival products. We find that common agency induces more aggressive behavior than exclusive dealing when products are substitutes and more collusive behavior when products are complements. As a result, manufactirers profits are higher under exclusive dealing for substitutes products.