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above-mentioned analysis asset assumed bilateral monopoly cheating and adhering Complexity of Product conditions and product costs of production Crawford and Alchian demand and marginal distortion removal schemes distributor-franchisee earns 7T EXAMPLES exclusive territories franchise arrangement franchise contract franchise fee franchisor gains from cheating Hence indifferent between cheating infinite storage costs input price joint monopoly solution marginal cost monopolist to cheat monopoly rent natural monopoly optimal output solution PjQj price and output price discrimination price searcher primary monopolist extracts probability of repeat product characteristics production process profit incentive profit maximizing behavior profit maximizing price purchase Q pure contract quantity Rand Corporation represents the profit sales rights secondary monopolist pays secondary seller Section sells Q service stations specifying stable contract storage cost assumption successive monopoly model successive monopoly solution threaten to shut transfer pricing Type II contract Type II franchise vertical integration vertically aligned yields Zeuthen