Working Paper: NBER ID: w16564
Authors: John Asker; Heski Barisaac
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.
Keywords: No keywords provided
JEL Codes: D42; K21; L12; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum resale price maintenance (RPM) (L42) | transfer profits to retailers (F16) |
| transfer profits to retailers (F16) | deter entry (F55) |
| minimum resale price maintenance (RPM) (L42) | deter entry (F55) |
| minimum resale price maintenance (RPM) (L42) | retailers prefer not to accommodate entry (L81) |
| fixed costs of entry significant (L11) | incumbent prefers exclusion over collusion (L12) |
| exclusion more profitable than collusion (L12) | incumbent prefers exclusion (D72) |
| minimum resale price maintenance (RPM) (L42) | strategic behavior of retailers and entrants (D43) |
| entrant's marginal costs low and fixed costs high (L11) | exclusion more profitable than collusion (L12) |