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American Economic Review: Vol. 104 No. 2 (February 2014)

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Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals

Article Citation

Asker, John, and Heski Bar-Isaac. 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals." American Economic Review, 104(2): 672-86.

DOI: 10.1257/aer.104.2.672

Abstract

Resale price maintenance (RPM), slotting fees, loyalty rebates, and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent's profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.

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Authors

Asker, John (NYU)
Bar-Isaac, Heski (U Toronto)

JEL Classifications

L14: Transactional Relationships; Contracts and Reputation; Networks
L22: Firm Organization and Market Structure
L25: Firm Performance: Size, Diversification, and Scope
L42: Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L81: Retail and Wholesale Trade; e-Commerce


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