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Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals

John Asker and Heski Bar-Isaac ()

American Economic Review, 2014, vol. 104, issue 2, 672-86

Abstract: Resale price maintenance (RPM), slotting fees, loyalty rebates, and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent's profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.

JEL-codes: L14 L22 L25 L42 L81 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.2.672
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Handle: RePEc:aea:aecrev:v:104:y:2014:i:2:p:672-86