Consumer-benefiting exclusive territories

I investigate the effect of exclusive territories, which are typical vertical controls imposed by upstream firms. Using shipping spatial models, I consider an industry that consists of many independent local markets. An upstream monopolist restricts competition between downstream firms using exclusive territories. I find that exclusive territories reduce the prices of final products in all local markets in quantity-setting competition. In price-setting competition, they raise prices in half the local markets, reduce them in other markets, and also reduce the total consumer surplus.