Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption
AbstractThis 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 InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2032.
Date of creation: 2007
Date of revision:
vertical restraints; safe harbors; antitrust policy;
Other versions of this item:
- Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2011. "Resale price maintenance and restrictions on dominant firm and industry-wide adoption," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 179-186, March.
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