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Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption

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  • Oystein Foros
  • Hans Jarle Kind
  • Greg Shaffer

Abstract

This paper examines the use of market-share thresholds (safe harbors) in evaluating whether a given vertical practice should be challenged. Such thresholds are typically found in vertical restraints guidelines (e.g., the 2000 Guidelines for the European Commission and the 1985 Guidelines for the U.S. Department of Justice). We consider a model of resale price maintenance (RPM) in which firms employ RPM to dampen downstream price competition. In this model, we find that restrictions on the use of RPM by a dominant firm can be welfare improving, but restrictions on the extent of the market that can be covered by RPM (i.e., the pervasiveness of the practice among firms in the industry) may lead to lower welfare and higher consumer prices than under a laissez-faire policy. Our results thus call into question the indiscriminate use of market-share thresholds in vertical cases.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2032.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2032

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Related research

Keywords: vertical restraints; safe harbors; antitrust policy;

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References

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  1. Jullien, Bruno & Rey, Patrick, 2000. "Resale Price Maintenance and Collusion," CEPR Discussion Papers 2553, C.E.P.R. Discussion Papers.
  2. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  3. 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.
  4. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  5. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  7. Corts, Kenneth S. & Neher, Darwin V., 2003. "Credible delegation," European Economic Review, Elsevier, vol. 47(3), pages 395-407, June.
  8. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
  9. Patrick Rey & Joseph E. Stiglitz, 1988. "Vertical Restraints and Producers' Competition," NBER Working Papers 2601, National Bureau of Economic Research, Inc.
  10. Robert Innes, 2006. "ENTRY DETERRENCE BY NON-HORIZONTAL MERGER -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 369-395, 09.
  11. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
  12. 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.
  13. Perry, Martin K & Besanko, David, 1991. "Resale Price Maintenance and Manufacturer Competition for Exclusive Dealerships," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 517-44, September.
  14. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
  15. Jansen, Jos, 2003. "Coexistence of strategic vertical separation and integration," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 699-716, May.
  16. Rafael Moner-Colonques & José J. Sempere-Monerris & Amparo Urbano, 2004. "Strategic Delegation with Multiproduct Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 405-427, 09.
  17. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
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Cited by:
  1. Bas, Maria & Ledezma, Ivan, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," Economics Papers from University Paris Dauphine 123456789/6913, Paris Dauphine University.

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