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Two Tales on Resale

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  • Höffler, Felix
  • Schmidt, Klaus M.

Abstract

In some markets vertically integrated firms sell directly to final customers hut 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

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 198.

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Date of creation: Mar 2007
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Handle: RePEc:trf:wpaper:198

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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. Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 55(220), pages 479-91, November.
  2. Bourreau, Marc & Hombert, Johan & Pouyet, Jerome & Schutz, Nicolas, 2007. "Wholesale Markets in Telecommunications," CEPREMAP Working Papers (Docweb), CEPREMAP 0703, CEPREMAP.
  3. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
  4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  5. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 59, pages 185.
  6. Höffler, Felix & Schmidt, Klaus M., 2008. "Two tales on resale," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(6), pages 1448-1460, November.
  7. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
  8. 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, Elsevier, vol. 25(5), pages 1026-1045, October.
  9. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 20(44), pages 705-749, October.
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Cited by:
  1. Höffler, Felix & Schmidt, Klaus M., 2007. "Two Tales on Resale," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 198, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. 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.
  3. repec:hal:wpaper:hal-00440126 is not listed on IDEAS
  4. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2012. "Geographic Access Rules and Investments," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9013, C.E.P.R. Discussion Papers.
  5. Inderst, Roman & Valletti, Tommaso, 2011. "Incentives for input foreclosure," European Economic Review, Elsevier, Elsevier, vol. 55(6), pages 820-831, August.
  6. Marc Bourreau & Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2009. "Upstream Competition between Vertically Integrated Firms," PSE Working Papers hal-00440126, HAL.

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