Exclusionary Minimum Resale Price Maintenance

John Asker and Heski Bar-Isaac

No 16564, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D42 K21 L12 L42 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-com
Note: IO
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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.

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