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Anti-Competitive Effects of resale-Below-Cost Laws

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  • Marie-Laure Allain

    (CREST - Centre de Recherche en Économie et Statistique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique, Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Claire Chambolle

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, LORIA - Laboratoire sur les Organisations Industrielles dans l'Agro-Alimentaire - INRA - Institut National de la Recherche Agronomique)

Abstract

We show that resale-below-cost laws enable producers to impose industry-wide price-floors to retailers. This mechanism suppresses downstream competition but also and more surprisingly dampens upstream competition, leading to higher prices and lower welfare. Price-floor may be more profitable for producers than resale price maintenance contracts and, when a resale price maintenance restraint may have ambiguous effect on welfare, price-floors are always welfare damaging. Retailers' buyer power appears as a key for a price-floor to work out.

Suggested Citation

  • Marie-Laure Allain & Claire Chambolle, 2011. "Anti-Competitive Effects of resale-Below-Cost Laws," Post-Print hal-00367492, HAL.
  • Handle: RePEc:hal:journl:hal-00367492
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00367492
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    References listed on IDEAS

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    1. Vanessa von Schlippenbach, 2008. "Complementarities, Below-Cost Pricing, and Welfare Losses," Discussion Papers of DIW Berlin 788, DIW Berlin, German Institute for Economic Research.
    2. Catherine C. de Fontenay & Joshua S. Gans, 2005. "Vertical Integration in the Presence of Upstream Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 544-572, Autumn.
    3. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.
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    5. Allain Marie-Laure & Chambolle Claire, 2005. "Loss-Leaders Banning Laws as Vertical Restraints," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(1), pages 1-25, February.
    6. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
    7. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
    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. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Rod Anderson & Ronald Johnson, 1999. "Antitrust and Sales-Below-Cost Laws: The Case of Retail Gasoline," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 189-204, May.
    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.
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    Citations

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    Cited by:

    1. Nocke, Volker & Rey, Patrick, 2014. "Exclusive Dealing and Vertical Integration in Interlocking Relationships," TSE Working Papers 14-515, Toulouse School of Economics (TSE), revised Jul 2017.
    2. Rey, Patrick & Verge, T., 2016. "Secret contracting in multilateral relations," TSE Working Papers 16-744, Toulouse School of Economics (TSE), revised Jul 2017.
    3. Patrick Rey & Thibaud Vergé, 2017. "Secret contracting in multilateral relations," Working Papers 2017-44, Center for Research in Economics and Statistics.
    4. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The Impact of Retail Mergers on Food Prices: Evidence from France," Working Papers hal-00920460, HAL.
    5. Stéphane Turolla, 2016. "Spatial Competition in the French Supermarket Industry," Annals of Economics and Statistics, GENES, issue 121-122, pages 213-259.
    6. Özlem Bedre-Defolie & Stéphane Caprice, 2011. "Merger efficiency and welfare implications of buyer power," ESMT Research Working Papers ESMT-11-07, ESMT European School of Management and Technology.
    7. Noriaki Matsushima & Akira Miyaoka, 2013. "Who benefits from resale-below-cost laws?," ISER Discussion Paper 0875, Institute of Social and Economic Research, Osaka University.
    8. repec:bla:jindec:v:65:y:2017:i:3:p:469-509 is not listed on IDEAS
    9. Bonnet, Céline & Bouamra-Mechemache, Zohra & Molina, Hugo, 2016. "The Welfare Effects of Brand Portfolio Strategies in the Soft Drink Industry: A Structural Bargaining Approach with Limited Data," 149th Seminar, October 27-28, 2016, Rennes, France 245168, European Association of Agricultural Economists.
    10. Eliana Viviano & Luciana Aimone Gigio & Emanuela Ciapanna & Daniele Coin & Fabrizio Colonna & Federica Lagna & Raffaele Santioni, 2012. "The retail trade sector and the food industry in Italy," Questioni di Economia e Finanza (Occasional Papers) 119, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    Price-floor; Resale Price Maintenance; Buyer Power; Competition;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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