Colluding through Suppliers
Catholic University of the Sacred Heart of Milan
University of Rochester - Simon Business School
May 19, 2012
Simon School Working Paper No. FR 12-07
This article investigates downstream firms' ability to collude in a repeated game of competition between supply chains. We show that downstream firms with buyer power can collude more easily in the output market if they also collude on their input supply contracts. More specifically, an implicit agreement on input supply contracts with above-cost wholesale prices and negative fixed fees (that is, slotting fees) facilitates collusion on downstream prices. Banning slotting fees or information exchange about wholesale prices decreases the scope for collusion. Moreover, high downstream prices are more difficult to sustain if upstream rather than downstream firms make contract offers.
Number of Pages in PDF File: 38
Keywords: collusion, vertical contracting, slotting fees, buyer power, information exchange
JEL Classification: D21, D43, L42
Date posted: April 2, 2012 ; Last revised: July 5, 2012
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