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Loss-Leaders Banning Laws as Vertical Restraints

  • Allain Marie-Laure

    (CNRS, Laboratoire d’Econométrie de I’Ecole Polytechnique, CREST-LEI, France)

  • Chambolle Claire

    (INRA-LORIA and Laboratoire d’Econométrie, Ecole Polytechnique, France)

This paper explores the indirect inflationary mechanism allowed by loss-leaders banning laws. In a model where a monopolist producer sells his product through vertically separated and differentiated retailers, we show that the ban of loss-leading can be used strategically by the producer to increase his wholesale price and pay the retailers through negotiated listing fees, thus raising his profit. The ban turns wholesale prices into floor prices, thus increasing resale price and lessening consumers’ welfare. These results are robust if the listing fees are two-part tariff.

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Article provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.

Volume (Year): 3 (2005)
Issue (Month): 1 (February)
Pages: 1-25

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Handle: RePEc:bpj:bjafio:v:3:y:2005:i:1:n:5
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  1. Claire Chambolle, 2000. "Stratégies de revente à perte et réglementation," Working Papers 2000-52, Centre de Recherche en Economie et Statistique.
  2. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  3. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  4. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  5. Stiglitz, J. & Rey, P., 1988. "Vertical Restraints And Producers' Competition," Papers 13, Princeton, Woodrow Wilson School - Discussion Paper.
  6. 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.
  7. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
  8. 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.
  9. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
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