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  3. American Economic Review
  4. February 2014
  5. Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals

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

  • John Asker
  • Heski Bar-Isaac
American Economic Review
vol. 104, no. 2, February 2014
(pp. 672-86)
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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.

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

Additional Materials

JEL Classification

  • 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