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Loss-leaders Banning Laws as Vertical Restraints

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  • Marie-Laure Allain

    (Crest)

  • Claire Chambolle

    (Crest)

Abstract

This paper explores the indirect in‡ationary mechanism allowed byloss leaders banning laws. In a model where a monopolist producer sells his productthrough vertically separated and di¤erentiated retailers, we show that the ban of resaleat a loss can be used strategically by the producer to increase his wholesale price andpay the retailers through negotiated listing fees, thus raising his profit. The ban turnswholesale prices into ‡oor prices, thus increasing resale price and lessening consumers’welfare. These results are robust if the listing fees are two-part tari¤.

Suggested Citation

  • Marie-Laure Allain & Claire Chambolle, 2004. "Loss-leaders Banning Laws as Vertical Restraints," Working Papers 2004-19, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2004-19
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    References listed on IDEAS

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    1. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-391, June.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    3. Claire Chambolle, 2005. "Stratégies de revente à perte et réglementation," Annals of Economics and Statistics, GENES, issue 77, pages 59-79.
    4. Rey, Patrick & Stiglitz, Joseph, 1988. "Vertical restraints and producers' competition," European Economic Review, Elsevier, vol. 32(2-3), pages 561-568, March.
    5. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-370, July.
    6. Roger Clarke & Stephen Davies & Paul Dobson & Michael Waterson, 2002. "Buyer Power and Competition in European Food Retailing," Books, Edward Elgar Publishing, number 2405.
    7. Walsh, Patrick Paul & Whelan, Ciara, 1999. "Loss leading and price intervention in multiproduct retailing: welfare outcomes in a second-best world1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 333-347, September.
    8. 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.
    9. 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.
    10. repec:adr:anecst:y:2005:i:77:p:06 is not listed on IDEAS
    11. 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 210-230, March.
    12. 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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    Cited by:

    1. Allain, Marie-Laure & Chambolle, Claire, 2011. "Anti-competitive effects of resale-below-cost laws," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 373-385, July.
    2. Zhijun Chen & Patrick Rey, 2012. "Loss Leading as an Exploitative Practice," American Economic Review, American Economic Association, vol. 102(7), pages 3462-3482, December.
    3. Dubois, Pierre & Jodar-Rosell, Sandra, 2010. "Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model," IDEI Working Papers 604, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.
    5. David Burch & Geoffrey Lawrence & Libby Hattersley, 2013. "Watchdogs and ombudsmen: monitoring the abuse of supermarket power," Agriculture and Human Values, Springer;The Agriculture, Food, & Human Values Society (AFHVS), vol. 30(2), pages 259-270, June.
    6. Célérier, C., 2009. "Forecasting inflation in France," Working papers 262, Banque de France.
    7. Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143.
    8. Inderst, Roman & Obradovits, Martin, 2015. "Too Much Attention on Low Prices? Loss Leading in a Model of Sales with Salient Thinkers," CEPR Discussion Papers 10813, C.E.P.R. Discussion Papers.

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