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Loss leaders banning laws as vertical restraints

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  • Marie-Laure Allain

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique)

  • Claire Chambolle

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique)

Abstract

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.

Suggested Citation

  • Marie-Laure Allain & Claire Chambolle, 2007. "Loss leaders banning laws as vertical restraints," Post-Print hal-00242935, HAL.
  • 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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    References listed on IDEAS

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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. Patrick Rey & Jeanine Thal & Thibaud Vergé, 2006. "Slotting Allowances and Conditional Payments," Working Papers 2006-23, Center for Research in Economics and Statistics.
    4. 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.
    5. 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.
    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, March.
    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.
    9. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.

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