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Resale price maintenance under asymmetric information

  • Martimort, David
  • Piccolo, Salvatore

We study Resale Price Maintenance (RPM) in a successive monopolies framework with adverse selection and moral hazard. The analysis compares both the private and the wel- fare properties of vertical contracts based on retail price restrictions with those derived under quantity .xing arrangements (QF). With information asymmetries, both types of vertical contracts entail a double marginalization driven by the presence of information rents, distributed to a privately informed downstream retailer, which forces the upstream producer to sell above its marginal costs. When .rms behave non-cooperatively, the up- stream producer always prefers RPM to QF, and the impact of RPM on consumers. surplus is ambiguous. With joint-pro.ts maximizing contracts, instead, whenever RPM maximizes constrained joint-pro.ts it also raises consumers.surplus, thereby producing a Pareto improvement relative to QF contracts.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 25 (2007)
Issue (Month): 2 (April)
Pages: 315-339

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Handle: RePEc:eee:indorg:v:25:y:2007:i:2:p:315-339
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Bruno Jullien & Patrick Rey, 2007. "Resale price maintenance and collusion," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 983-1001, December.
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  5. Martimort, David & Piccolo, Salvatore, 2007. "Resale price maintenance under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 315-339, April.
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  9. Eric Maskin & John G. Riley, 1984. "Input Versus Output Incentive Schemes," UCLA Economics Working Papers 354, UCLA Department of Economics.
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  13. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
  14. Benjamin F. Blair & Tracy R. Lewis, 1994. "Optimal Retail Contracts with Asymmetric Information and Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 284-296, Summer.
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