IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v69y2021i1p131-168.html
   My bibliography  Save this article

Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective

Author

Listed:
  • Teis Lunde Lømo
  • Simen A. Ulsaker

Abstract

How should manufacturers motivate their retailers to provide customer services? The vertical restraints literature tells us that retail competition distorts service incentives in the short run. We consider how repeated interaction mitigates this problem, and particularly how a manufacturer can provide service incentives with discretionary lump‐sum payments. We find that these payments may allow the manufacturer to sustain optimal service levels even if retailers are very impatient. We also show that banning reverse lump‐sum payments may deprive consumers of the chance to enjoy high‐quality services, and thereby reduce their welfare.

Suggested Citation

  • Teis Lunde Lømo & Simen A. Ulsaker, 2021. "Lump‐Sum Payments and Retail Services: A Relational Contracting Perspective," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 131-168, March.
  • Handle: RePEc:bla:jindec:v:69:y:2021:i:1:p:131-168
    DOI: 10.1111/joie.12236
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12236
    Download Restriction: no

    File URL: https://libkey.io/10.1111/joie.12236?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ola Kvaløy & Trond E. Olsen, 2006. "Team Incentives in Relational Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 139-170, January.
    2. John Asker & Heski Bar-Isaac, 2020. "Vertical Information Restraints: Pro- and Anticompetitive Impacts of Minimum-Advertised-Price Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 63(1), pages 111-148.
    3. Allain, Marie-Laure & Chambolle, Claire, 2011. "Anti-competitive effects of resale-below-cost laws," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 373-385, July.
    4. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    5. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
    6. Luis Rayo, 2007. "Relational Incentives and Moral Hazard in Teams," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 937-963.
    7. Norbert Schulz, 2007. "Does the Service Argument Justify Resale Price Maintenance?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 236-255, June.
    8. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    9. Stefan Buehler & Dennis L. Gärtner, 2013. "Making Sense of Nonbinding Retail-Price Recommendations," American Economic Review, American Economic Association, vol. 103(1), pages 335-359, February.
    10. Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-297, October.
    11. Perry, Martin K. & Porter, Robert H., 1990. "Can resale price maintenance and franchise fees correct sub-optimal levels of retail service?," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 115-141.
    12. Jonathan Levin, 2002. "Multilateral Contracting and the Employment Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 1075-1103.
    13. Ricard Gil & Giorgio Zanarone, 2018. "On the determinants and consequences of informal contracting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 726-741, October.
    14. Matthias Hunold & Johannes Muthers, 2017. "Resale price maintenance and manufacturer competition for retail services," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 3-23, March.
    15. Salvatore Piccolo & Markus Reisinger, 2011. "Exclusive Territories and Manufacturers' Collusion," Management Science, INFORMS, vol. 57(7), pages 1250-1266, July.
    16. Tommy Staahl Gabrielsen & Bjørn Olav Johansen, 2017. "Resale Price Maintenance with Secret Contracts and Retail Service Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 63-87, February.
    17. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-686, February.
    18. Claire Chambolle & Clémence Christin, 2017. "New Product Introduction and Slotting Fees," Working Papers hal-01458949, HAL.
    19. Allain Marie-Laure & Chambolle Claire, 2005. "Loss-Leaders Banning Laws as Vertical Restraints," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(1), pages 1-25, February.
    20. Benjamin Klein & Joshua D. Wright, 2007. "The Economics of Slotting Contracts," Journal of Law and Economics, University of Chicago Press, vol. 50(3), pages 421-454.
    21. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    22. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, vol. 97(4), pages 1321-1339, September.
    23. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    24. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    25. Ralph A. Winter, 1993. "Vertical Control and Price Versus Nonprice Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 61-76.
    26. Salvatore Piccolo & Jeanine Miklós-Thal, 2012. "Colluding through suppliers," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 492-513, September.
    27. Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
    28. Troya-Martinez, Marta, 2017. "Self-enforcing trade credit," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 333-357.
    29. Giorgio Zanarone, 2013. "Contract Adaptation under Legal Constraints," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(4), pages 799-834, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lømo, Teis Lunde & Meland, Frode & Sandvik, Håvard Mork, 2020. "Do slotting allowances reduce product variety?," Working Papers in Economics 7/20, University of Bergen, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lømo, Teis Lunde & Ulsaker, Simen Aardal, 2016. "Promotional allowances," Working Papers in Economics 08/16, University of Bergen, Department of Economics.
    2. Dertwinkel-Kalt, Markus & Wey, Christian, 2023. "Resale price maintenance in a successive monopoly model," DICE Discussion Papers 395, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Robert Clark & Ignatius Horstmann & Jean-François Houde, 2021. "Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry," NBER Working Papers 29253, National Bureau of Economic Research, Inc.
    4. Dertwinkel-Kalt, Markus & Wey, Christian, 2021. "Multi-Product Pricing and Minimum Resale Price Maintenance," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242338, Verein für Socialpolitik / German Economic Association.
    5. Nicholas Argyres & Janet Bercovitz & Giorgio Zanarone, 2020. "The role of relationship scope in sustaining relational contracts in interfirm networks," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 222-245, February.
    6. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2022. "Relationships Under Stress: Relational Outsourcing in the U.S. Airline Industry After the 2008 Financial Crisis," Management Science, INFORMS, vol. 68(2), pages 1256-1277, February.
    7. Staahl Gabrielsen, Tommy & Johansen, Bjørn Olav & Shaffer, Greg, 2018. "When is Double Marginalization a Problem?," Working Papers in Economics 7/18, University of Bergen, Department of Economics.
    8. Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143, March.
    9. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    10. Kenji, Matsui, 2011. "Resale price maintenance for supply chains distributing products with demand uncertainty," International Journal of Production Economics, Elsevier, vol. 134(2), pages 375-387, December.
    11. Matthias Fahn & Giorgio Zanarone, 2022. "Transparency in relational contracts," Strategic Management Journal, Wiley Blackwell, vol. 43(5), pages 1046-1071, May.
    12. Ricard Gil & Giorgio Zanarone, 2018. "On the determinants and consequences of informal contracting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 726-741, October.
    13. Frank Mathewson & Ralph Winter, 1998. "The Law and Economics of Resale Price Maintenance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(1), pages 57-84, April.
    14. Marcel Boyer & Thomas W. Ross & Ralph A. Winter, 2017. "The rise of economics in competition policy: A Canadian perspective," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1489-1524, December.
    15. Ulsaker, Simen A., 2020. "Competing buyers, rent extraction and inefficient exclusion," International Journal of Industrial Organization, Elsevier, vol. 68(C).
    16. Matthias Hunold & Johannes Muthers, 2023. "Manufacturer Collusion and Resale Price Maintenance," Volkswirtschaftliche Diskussionsbeiträge 197-23, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    17. Sahuguet, Nicolas & Walckiers, Alexis, 2017. "A theory of hub-and-spoke collusion," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 353-370.
    18. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
    19. Kragl, Jenny & Schmid, Julia, 2009. "The impact of envy on relational employment contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 766-779, November.
    20. J. Miguel Villas-Boas, 2020. "Repeated Interaction in Teams: Tenure and Performance," Management Science, INFORMS, vol. 66(3), pages 1496-1507, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:69:y:2021:i:1:p:131-168. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.