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Resale Price Maintenance And Up-Front Payments: Achieving Horizontal Control Under Seller And Buyer Power

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Author Info

  • Gabrielsen, Tommy Staahl

    ()
    (Department of Economics, University of Bergen)

  • Johansen, Bjørn Olav

    ()
    (Department of Economics, University of Bergen)

Abstract

We consider a setting where an upstream producer and a competitive fringe of producers of a substitute product may sell their products to two differentiated downstream retailers. We investigate two different contracting games; one with seller power and a second game with buyer power. In each game we characterize the minimum set of vertical restraints that make the vertically integrated profit sustainable as an equilibrium outcome, and we also characterize sufficient conditions for having interlocking relationships (i.e. no exclusion). In line with the recent literature, we focus on the performance of simple two-part tariffs, upfront payments and RPM as facilitating devices for reducing competition under both buyer and seller power. With seller power we show that minimum RPM, possibly coupled with a quantity roof, will allow the manufacturer to induce industry wide monopoly prices. With buyer power we show that monopoly prices may be induced if the retailers may use an upfront fee together with a two-part tariff and a minimum RPM.

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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 02/13.

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Length: 36 pages
Date of creation: 11 Apr 2013
Date of revision:
Handle: RePEc:hhs:bergec:2013_002

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Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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Web page: http://www.uib.no/econ/en
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Keywords: resale price maintenance; seller power; buyer power; horsizontal control;

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References

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  1. Jeanine Miklós‐Thal & Patrick Rey & Thibaud Vergé, 2011. "Buyer Power And Intrabrand Coordination," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 721-741, 08.
  2. Gabrielsen, Tommy Staahl & Johansen, Bjørn Olav, 2012. "Buyer power and exclusion in vertically related markets," Working Papers in Economics 01/12, University of Bergen, Department of Economics.
  3. Roman Inderst & Greg Shaffer, 2010. "Market-share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729.
  4. B. Douglas Bernheim & Michael D. Whinston, 1996. "Exclusive Dealing," NBER Working Papers 5666, National Bureau of Economic Research, Inc.
  5. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
  6. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05.
  7. Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143.
  8. Rey, Patrick & Tirole, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
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