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Anti-Competitive Effects of Resale-Below-Cost Laws

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  • Marie-Laure Allain

    (Crest)

  • Claire Chambolle

    (Crest)

Abstract

We show that resale-below-cost laws enable producers to impose price-floors toretailers. This mechanism suppresses downstream competition but also and moresurprisingly dampens upstream competition, leading to higher prices and lower welfare.This article also shows that a price-floor implements corner equilibria that areworse for welfare than a resale price maintenance contract. Retailers’ buyer powerappears as a key element for a price-floor to work out.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2007-29.

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Length: 47
Date of creation: 2007
Date of revision:
Handle: RePEc:crs:wpaper:2007-29

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  1. 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.
  2. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.
  3. Paul W. Dobson & Michael Waterson, 1996. "Product Range and Interfirm Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 317-341, 09.
  4. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.
  5. Villas-Boas, Sofia B., 2007. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6gz1t778, Department of Agricultural & Resource Economics, UC Berkeley.
  6. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
  8. Marie-Laure Allain & Claire Chambolle, 2004. "Loss-leaders Banning Laws as Vertical Restraints," Working Papers 2004-19, Centre de Recherche en Economie et Statistique.
  9. Rod Anderson & Ronald Johnson, 1999. "Antitrust and Sales-Below-Cost Laws: The Case of Retail Gasoline," Review of Industrial Organization, Springer, vol. 14(3), pages 189-204, May.
  10. 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.
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Cited by:
  1. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The Impact of Retail Mergers on Food Prices: Evidence from France," Working Papers hal-00920460, HAL.
  2. Eliana Viviano & Luciana Aimone Gigio & Emanuela Ciapanna & Daniele Coin & Fabrizio Colonna & Federica Lagna & Raffaele Santioni, 2012. "The retail trade sector and the food industry in Italy," Questioni di Economia e Finanza (Occasional Papers) 119, Bank of Italy, Economic Research and International Relations Area.
  3. Stéphane Turolla, 2012. "Spatial competition in the French supermarket industry," Working Papers SMART - LERECO 12-01, INRA UMR SMART.
  4. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The impact of retail mergers on food prices: evidence from France," Working Papers 181943, Institut National de la Recherche Agronomique, France.
  5. Stephane Caprice & Vanessa von Schlippenbach, 2008. "Competition policy in a concentrated and globalized retail industry," Working Papers 23775, Institut National de la Recherche Agronomique, France.
  6. Özlem Bedre-Defolie & Stéphane Caprice, 2011. "Merger Efficiency and Welfare Implications of Buyer Power," Discussion Papers of DIW Berlin 1144, DIW Berlin, German Institute for Economic Research.
  7. Noriaki Matsushima & Akira Miyaoka, 2013. "Who benefits from resale-below-cost laws?," ISER Discussion Paper 0875, Institute of Social and Economic Research, Osaka University.

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