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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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File URL: http://pages.stern.nyu.edu/~jasker/RPMFinal.pdf
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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 11-22.

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Date of creation: 2011
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Handle: RePEc:ste:nystbu:11-22
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New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126

Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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