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Loss-Leaders Banning Laws as Vertical Restraints

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Author Info

  • Allain Marie-Laure

    (CNRS, Laboratoire d’Econométrie de I’Ecole Polytechnique, CREST-LEI, France)

  • Chambolle Claire

    (INRA-LORIA and Laboratoire d’Econométrie, Ecole Polytechnique, France)

Abstract

This paper explores the indirect inflationary mechanism allowed by loss-leaders banning laws. In a model where a monopolist producer sells his product through vertically separated and differentiated retailers, we show that the ban of loss-leading can be used strategically by the producer to increase his wholesale price and pay the retailers through negotiated listing fees, thus raising his profit. The ban turns wholesale prices into floor prices, thus increasing resale price and lessening consumers’ welfare. These results are robust if the listing fees are two-part tariff.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.

Volume (Year): 3 (2005)
Issue (Month): 1 (February)
Pages: 1-25

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Handle: RePEc:bpj:bjafio:v:3:y:2005:i:1:n:5

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References

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  1. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
  2. Stiglitz, J. & Rey, P., 1988. "Vertical Restraints And Producers' Competition," Papers 13, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Claire Chambolle, 2000. "Stratégies de revente à perte et réglementation," Working Papers 2000-52, Centre de Recherche en Economie et Statistique.
  4. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
  5. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  6. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
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Citations

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Cited by:
  1. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.
  2. Zhijun Chen & Patrick Rey, 2010. "Loss Leading as an Exploitative Practice," Working Papers hal-00540724, HAL.
  3. Célérier, C., 2009. "Forecasting inflation in France," Working papers 262, Banque de France.
  4. Dubois, Pierre & Jodar Rosell, Sandra, 2010. "Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model," CEPR Discussion Papers 7847, C.E.P.R. Discussion Papers.
  5. Marie-Laure Allain & Claire Chambolle, 2007. "Anti-Competitive Effects of Resale-Below-Cost Laws," Working Papers 2007-29, Centre de Recherche en Economie et Statistique.
  6. David Burch & Geoffrey Lawrence & Libby Hattersley, 2013. "Watchdogs and ombudsmen: monitoring the abuse of supermarket power," Agriculture and Human Values, Springer, vol. 30(2), pages 259-270, June.

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