NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exclusionary Minimum Resale Price Maintenance

John Asker, Heski Bar-Isaac

NBER Working Paper No. 16564
Issued in December 2010
NBER Program(s):   IO

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.

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Document Object Identifier (DOI): 10.3386/w16564

Published: 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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