Working Paper: CEPR ID: DP6248
Authors: Felix Höffler; Klaus M. Schmidt
Abstract: In some markets vertically integrated firms sell directly to final customers but also to independent downstream firms with whom they then compete on the downstream market. It is often argued that resellers intensify competition and benefit consumers, in particular when wholesale prices are regulated. However, we show that (i) resale may increase prices and make consumers worse off and that (ii) standard 'retail minus X regulation' may increase prices and harm consumers. Our analysis suggests that this is more likely if the number of integrated firms is small, the degree of product differentiation is low, and/or if competition is spatial.
Keywords: nonspatial product differentiation; resale regulation; spatial product differentiation; vertical restraints; wholesale
JEL Codes: D43; L11; L42; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| resale (L42) | increased prices (P22) |
| resale (L42) | decreased consumer welfare (D11) |
| retail minus x regulation (L51) | increased prices (P22) |
| retail minus x regulation (L51) | decreased consumer welfare (D11) |
| low number of integrated firms (L19) | increased prices (P22) |
| low product differentiation (L15) | increased prices (P22) |
| low number of integrated firms (L19) | decreased consumer welfare (D11) |
| low product differentiation (L15) | decreased consumer welfare (D11) |