Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 27

Jimmy's Stereo Company manufactures stereo equipment. Its business strategy is to provide retail customers high-quality equipment, along with good service and warranty protection. It currently distributes its products through licensed dealers who have exclusive territories. Discuss: (1) why Jimmy's might offer its distributors exclusive territories, (2) the potential problems that this policy might create in terms of retail pricing, and (3) potential policies that Jimmy's might use to address this pricing problem.