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Vertical restraints and horizontal control

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  • Robert Innes
  • Stephen F. Hamilton

Abstract

This article considers vertical restraints in a setting in which duopoly retailers each sell more than one manufactured good. Vertical restraints by a dominant manufacturer enable the firm to acquire horizontal control over a competitively supplied retail good. The equilibrium contracts produce symptoms that are consistent with a variety of observed retail practices, including slotting fees paid to retailers by competitive suppliers, loss leadership, and predatory accommodation with below-cost manufacturer pricing for the dominant brand(s). Applications are developed for supermarket retailing, where the manufacturer of a national brand seeks to control the retail pricing of a supermarket's private label, and for convenience stores, where a gasoline provider seeks to control the retail pricing of an in-store composite consumption good. Copyright (c) 2009, RAND.

Suggested Citation

  • Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143.
  • Handle: RePEc:bla:randje:v:40:y:2009:i:1:p:120-143
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Rey, Patrick & Verge, T., 2016. "Secret contracting in multilateral relations," TSE Working Papers 16-744, Toulouse School of Economics (TSE), revised Jul 2017.
    2. Noriaki Matsushima & Akira Miyaoka, 2013. "Who benefits from resale-below-cost laws?," ISER Discussion Paper 0875, Institute of Social and Economic Research, Osaka University.
    3. Gabrielsen, Tommy Staahl & Johansen, Bjørn Olav, 2013. "Resale Price Maintenance And Up-Front Payments: Achieving Horizontal Control Under Seller And Buyer Power," Working Papers in Economics 02/13, University of Bergen, Department of Economics.
    4. Gabrielsen, Tommy S. & Johansen, Bjørn Olav & Lømo, Teis L., 2015. "Resale price maintenance in two-sided markets," Working Papers in Economics 08/15, University of Bergen, Department of Economics.
    5. Tommy Staahl Gabrielsen & Bjørn Olav Johansen, 2017. "Resale Price Maintenance with Secret Contracts and Retail Service Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 63-87, February.
    6. Hamilton, Stephen & Innes, Robert, 2017. "Slotting allowances and retail product variety under oligopoly," Economics Letters, Elsevier, vol. 158(C), pages 34-36.
    7. Hamilton, Stephen F. & Bontems, Philippe & Lepore, Jason, 2015. "Oligopoly intermediation, relative rivalry and market conduct," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 49-59.
    8. repec:kap:jeczfn:v:121:y:2017:i:3:d:10.1007_s00712-017-0529-5 is not listed on IDEAS

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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