Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals
American Economic Review · 2014 · Volume 104 · Issue 2
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.
Keywords
Transactional Relationships, Contracts and Reputation, Networks, Firm Organization and Market Structure, Firm Performance: Size, Diversification, and Scope, Vertical Restraints, Resale Price Maintenance, Quantity Discounts, Retail and Wholesale Trade, e-Commerce
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