Vertical Limit pricing
A new theory of limit pricing is provided which works through the vertical contract signed between an incumbent manufacturer and a retailer. We establish conditions under which the incumbent can obtain full monopoly profits, even if the potential entrant is more efficient. A key feature of the optimal vertical contract we describe is quantity discounting, typically involving three-part incremental-units or all-units tariffs, with a marginal wholesale price that is below the incumbent’s marginal cost for sufficiently large quantities.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: PO Box 450, Station A, Ottawa, Ontario, K1N 6N5|
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- Patrick Rey & Thibaud Verge, 2002.
"Bilateral Control with Vertical Contracts,"
The Centre for Market and Public Organisation
02/048, Department of Economics, University of Bristol, UK.
- Marius Schwartz & Earl A. Thompson, 1986. "Divisionalization and Entry Deterrence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 307-321.
- Rey, Patrick & Stiglitz, Joseph, 1988.
"Vertical restraints and producers' competition,"
European Economic Review,
Elsevier, vol. 32(2-3), pages 561-568, March.
- Patrick Rey & Joseph E. Stiglitz, 1988. "Vertical Restraints and Producers' Competition," NBER Working Papers 2601, National Bureau of Economic Research, Inc.
- Stiglitz, J. & Rey, P., 1988. "Vertical Restraints And Producers' Competition," Papers 13, Princeton, Woodrow Wilson School - Discussion Paper.
- Milgrom, Paul & Shannon, Chris, 1994.
"Monotone Comparative Statics,"
Econometric Society, vol. 62(1), pages 157-80, January.
- Irmen, Andreas, 1998.
" Precommitment in Competing Vertical Chains,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 12(4), pages 333-59, September.
- Andreas IRMEN, 1996. "Precommitment in Competing Vertical Chains," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9617, Université de Lausanne, Faculté des HEC, DEEP.
- Fumagalli, Chiara & Motta, Massimo, 2002.
"Exclusive Dealing and Entry, when Buyers Compete,"
CEPR Discussion Papers
3493, C.E.P.R. Discussion Papers.
- Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
- Stefanadis, Christodoulos, 1998. "Selective Contracts, Foreclosure, and the Chicago School View," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 429-50, October.
- Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-45, December.
- Patrick Rey & Joseph Stiglitz, 1994.
"The Role of Exclusive Territories in Producers' Competition,"
NBER Working Papers
4618, National Bureau of Economic Research, Inc.
- Patrick Rey & Joseph Stiglitz, 1995. "The Role of Exclusive Territories in Producers' Competition," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 431-451, Autumn.
- David Martimort & Lars Stole, 2001.
"The Revelation and Delegation Principles in Common Agency Games,"
CESifo Working Paper Series
575, CESifo Group Munich.
- David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
- Bruce Kobayashi, 2005. "The Economics of Loyalty Rebates and Antitrust Law in the United States," CPI Journal, Competition Policy International, vol. 1.
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