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Vertical Practices Facilitating Exclusion

Authors: Asker, John
Bar-Isaac, Heski
Issue Date: 26-Nov-2012
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.
Rights: Copyright John Asker and Heski Bar-Isaac, 2012.
Appears in Collections:Economics Working Papers

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