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Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry

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  • Martin K. Perry
  • Robert H. Groff

Abstract

In this paper we adopt the CES model of product differentiation for the downstream stage of the industry. With an upstream monopolist we first show that resale price maintenance is equivalent to forward integration and that both increase profits. Then we demonstrate that forward integration by an upstream monopolist will reduce welfare for the industry. Prices fall with forward integration, but the integrating firm contracts the number of downstream subsidiaries so drastically that the reduced diversity more than offsets the gains from lower prices.

Suggested Citation

  • Martin K. Perry & Robert H. Groff, 1985. "Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1293-1311.
    • Handle: RePEc:oup:qjecon:v:100:y:1985:i:4:p:1293-1311.
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    File URL: http://hdl.handle.net/10.2307/1885684
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    Citations

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    Cited by:

    1. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.
    2. James L. Hamilton & Nancy L. Philippart, 1987. "On the Nonequivalence of Maximum Resale Price Maintenance and Vertical Integration," Eastern Economic Journal, Eastern Economic Association, vol. 13(4), pages 411-419, Oct-Dec.
    3. Church, Jeffrey & Gandal, Neil, 1992. "Integration, Complementary Products, and Variety," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 651-675, Winter.
    4. Igor Bykadorov, 2023. "The Open Monopolistic Competition Models: Market Equilibrium and Social Optimality," Mathematics, MDPI, vol. 11(19), pages 1-13, October.
    5. Mattoo, Aaditya, 1999. "Can no antitrust policy be better than some antitrust policy?," Policy Research Working Paper Series 2191, The World Bank.
    6. Greg Shaffer, 1994. "Rendering Alternative Offerings Less Profitable with Resale Price Maintenance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(4), pages 639-662, December.
    7. Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September.
    8. Zenger, Hans, 2009. "Successive Monopolies with Endogenous Quality," MPRA Paper 15659, University Library of Munich, Germany.
    9. Stijn Ferrari & Frank Verboven, 2012. "Vertical control of a distribution network—an empirical analysis of magazines," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 26-50, March.
    10. Douglas West, 2000. "Double Marginalization and Privatization in Liquor Retailing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(4), pages 399-415, June.
    11. Spulber, Daniel F, 1992. "Economic Analysis and Management Strategy: A Survey," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 535-574, Fall.
    12. Bykadorov Igor, 2010. "Product Diversity in a Vertical Distribution Channel under Monopolistic Competition," EERC Working Paper Series 10/03e, EERC Research Network, Russia and CIS.
    13. Miao, Chun-Hui, 2016. "Licensing a technology standard," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 33-61.
    14. Heywood, John S. & Wang, Shiqiang & Ye, Guangliang, 2018. "Resale price maintenance and spatial price discrimination," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 147-174.
    15. Reiffen, David, 1999. "On the equivalence of resale price maintenance and quantity restrictions," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 277-288, February.
    16. Kenji, Matsui, 2011. "Resale price maintenance for supply chains distributing products with demand uncertainty," International Journal of Production Economics, Elsevier, vol. 134(2), pages 375-387, December.

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