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Two tales on resale

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Author Info

  • Höffler, Felix
  • Schmidt, Klaus M.

Abstract

In some markets vertically integrated firms sell directly to final customers but also to independent downstream firms with whom they then compete on the downstream market. It is often argued that resellers intensify competition and benefit consumers, in particular when wholesale prices are regulated. However, we show that (i) resale may increase prices and make consumers worse off and that (ii) standard "retail minus X regulation" may increase prices and harm consumers. Our analysis suggests that this is more likely if the number of integrated firms is small, the degree of product differentiation is low, and/or if competition is spatial.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 6 (November)
Pages: 1448-1460

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Handle: RePEc:eee:indorg:v:26:y:2008:i:6:p:1448-1460

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Resale regulation Wholesale Spatial product differentiation Non-spatial product differentiation Vertical restraints;

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References

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  1. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
  2. Anderson, S., 1986. "Equilibrium existence in the linear model of spatial competition," CORE Discussion Papers 1986013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Höeffler, Felix & Schmidt, Klaus M., 2007. "Two Tales on Resale," CEPR Discussion Papers 6248, C.E.P.R. Discussion Papers.
  4. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR & CES & MSH, vol. 20(44), pages 705-749, October.
  5. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
  6. Bourreau, Marc & Hombert, Johan & Pouyet, Jerome & Schutz, Nicolas, 2007. "Wholesale Markets in Telecommunications," CEPREMAP Working Papers (Docweb) 0703, CEPREMAP.
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  8. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
  9. Ordover, Janusz & Shaffer, Greg, 2007. "Wholesale access in multi-firm markets: When is it profitable to supply a competitor?," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1026-1045, October.
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Citations

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Cited by:
  1. Paul Madden & Mario Pezzino, 2013. "Sports League Quality, Broadcaster TV Rights Bids and Wholesale Regulation of Sports Channels," The School of Economics Discussion Paper Series 1304, Economics, The University of Manchester.
  2. Inderst, Roman & Valletti, Tommaso, 2011. "Incentives for input foreclosure," European Economic Review, Elsevier, vol. 55(6), pages 820-831, August.
  3. Marc Bourreau & Johan Hombert & Jerome Pouyet & Nicolas Schutz, 2011. "Upstream Competition between Vertically Integrated Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 677-713, December.
  4. Höffler, Felix & Schmidt, Klaus M., 2007. "Two Tales on Resale," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 198, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Michiel Bijlsma & Gijsbert Zwart, 2009. "Competition for access; spectrum rights and downstream access in wireless telecommunications," CPB Discussion Paper 123, CPB Netherlands Bureau for Economic Policy Analysis.

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