An Empirical Test of the Free Rider and Market Power Hypothesis

Abstract

This analysis tests the free-rider hypothesis as it applies to the Sealy mattress licensing system, one of the oldest and most prominent examples of vertical and horizontal distribution restraints. The results reported here focus on the period following the elimination of Sealy's territorial restraints in 1980. Using alternative samples, units of measurement, and estimating techniques, the analyses yield consistent results supporting the market power hypothesis: the Sealy territorial restraints on distribution decreased output and increased prices. Copyright 1991 by MIT Press.