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Exclusionary Minimum Resale Price Maintenance

  • John Asker
  • Heski Bar-Isaac

An upstream manufacturer can use minimum retail price maintenance (RPM) to exclude potential competitors. RPM lets the incumbent manufacturer transfer profits to retailers. If entry is accommodated, upstream competition leads to fierce down- stream competition and the breakdown of RPM. Hence, via RPM, retailers internalize the effect of accommodating entry on the incumbent's profits. Retailers may prefer not to accommodate entry; and, if entry requires downstream accommodation, entry can be deterred. We investigate when an incumbent would prefer to exclude, rather than collude with, the entrant and the effect of a retailer cartel. We also consider the effect of imperfect competition. Empirical and policy implications are discussed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16564.

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Date of creation: Dec 2010
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Publication status: published as Raising Retailers Pro ts: On Vertical Practices and the Exclusion of Rivals, (with Heski Bar-Isaac), American Economic Review , 104(2), 672-686, 2014.
Handle: RePEc:nbr:nberwo:16564
Note: IO
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