Two Tales on Resale
WHU - Otto Beisheim School of Management
Klaus M. Schmidt
Ludwig-Maximilians-Universität München - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)
MPI Collective Goods Preprint Paper No. 2007/16
In some markets vertically integrated firms sell directly to final customers but also to independent downstream firms with whom they then compete on the downstream market. It is often argued that resellers intensify competition and benefit consumers, in particular when wholesale prices are regulated. However, we show that (i) resale may increase prices and make consumers worse off and that (ii) standard "retail minus X regulation" may increase prices and harm consumers. Our analysis suggests that this is more likely if the number of integrated firms is small, the degree of product differentiation is low, and/or if competition is spatial.
Number of Pages in PDF File: 39
Keywords: Resale regulation, wholesale, spatial product differentiation, non-spatial product
Date posted: December 17, 2007
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