CONCENTRATION, MARKETING ARRANGEMENTS AND COMPETITION (II)
The manufacturers of many types of product distribute their products in some markets through merchants or agents to whom sole distributing rights are granted. This method is one of several open to a manufacturer who wishes to enter a particular market, and by it the distributor relieves the manufacturer of the necessity for local marketing activities, such as the carrying of adequate stocks, the promotion of sales (whether by advertising or by canvassing the trade), the handling and execution of orders and, where necessary, the provision of aftersale services. The satisfactory performance of these activities in some cases requires a substantial organization, as well as considerable knowledge of local trading conditions. An established distributor may be able to provide the necessary services for a new product or brand more cheaply and effectively than could the manufacturer if the latter were to set up a new organization specially for the purpose. The distributor may, however, incur appreciable costs for the introduction and promotion of the new product. These costs are in the nature of capital outlays, and the distributor is not likely to incur them unless he is reasonably certain to secure the profits for himself, at least for some years. Sole distributing rights ensure that the benefits of his efforts will accrue to his advantage and not to that of his competitors; the granting of such rights may be regarded as the necessary payment by the manufacturer for the investment and the service which he requires.1 Sometimes the sole distributor in return for his exclusive rights undertakes not to handle competing brands; thus the exclusiveness may be reciprocal.
Although they are referred to as sole agents, the firms holding sole distributing rights often act as principals and not as agents. They own the stocks they carry, assume the credit and other trading risks, and may bear a substantial proportion of the cost of promoting the brand. Moreover, the sole distributor is usually free to determine the price at____________________