Working Paper: CEPR ID: DP2553
Authors: Bruno Jullien; Patrick Rey
Abstract: The paper revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude. We analyse the scope for collusion with and without resale price maintenance (RPM) when retailers observe local shocks on demand or retail costs. In the absence of RPM, retail prices react to retailers' information and deviations from collusive behaviour are thus difficult to detect. By eliminating retail price flexibility, RPM facilitates the detection of deviations but reduces profits and increases the short-run gains from a deviation. Overall, RPM can facilitate collusion and it reduces total welfare whenever firms choose to adopt it.
Keywords: Antitrust; Collusion; Resale Price Maintenance; Vertical Restraints
JEL Codes: K21; L13; L41; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RPM (C59) | collusion (D74) |
| RPM (C59) | rigidity of prices (L11) |
| rigidity of prices (L11) | easier detection of deviations (L15) |
| collusion (D74) | reduced profits (D33) |
| RPM (C59) | profits (L21) |
| RPM (C59) | uniformity of retail prices (L11) |
| uniformity of retail prices (L11) | collusion (D74) |