Territorialization-A Reconsideration on the Case of Sealy

Some modern enterprises manage their organizations through contract-type restraints to obtain synergetic advantages and to increase their operation efficiency. However, the arguments of applying these restraints such as exclusive sales (manufacture) territory are controversal. The debate of this issue among previous literatures focused on whether these contract-type restraints will increase consumers' welfare or become a monopoly power Starting with reviewing a US legal process- the case of Sealy, Inc., this paper substantiates how the illegality of exclusive territory provisions will eventually increase the social costs and negatively impact the economy. It is argued that, in the long run, the restrictions on intrabrand competition among licensees will generate merits to protect free-riding problems and to ensure brand name quality. As a result, the increased interbrand competition among enterprises will bring consumers' welfare towards maximization. It is suggested that enterprises in other countries such as Taiwan should evaluate their business structures and contract-type restraints from various aspects, in order to promote their overall competitiveness in the long run.