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Loss leaders banning laws as vertical restraints

  • Marie-Laure Allain

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS)

  • Claire Chambolle

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS)

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 resale at a loss 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.

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File URL: https://hal.archives-ouvertes.fr/hal-00242935/document
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Paper provided by HAL in its series Post-Print with number hal-00242935.

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Date of creation: 2007
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Publication status: Published in Journal of Agricultural & Food Industrial Organization, 2007, 3 (1), pp.1092-1092
Handle: RePEc:hal:journl:hal-00242935
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00242935
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  1. repec:adr:anecst:y:2005:i:77:p:06 is not listed on IDEAS
  2. Rey, Patrick & Stiglitz, Joseph, 1988. "Vertical restraints and producers' competition," European Economic Review, Elsevier, vol. 32(2-3), pages 561-568, March.
  3. 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.
  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. Claire Chambolle, 2000. "Stratégies de revente à perte et réglementation," Working Papers 2000-52, Centre de Recherche en Economie et Statistique.
  6. 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.
  7. 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.
  8. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  9. 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.
  10. 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.
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