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Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide AdoptionØ. ForosNorwegian School of Economics (NHH) - Department of Economics Hans Jarle KindNorwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Norwegian School of Economics (NHH) - Department of Economics Greg ShafferUniversity of Rochester - Simon Graduate School of Business June 2007 CESifo Working Paper Series No. 2032 Abstract: This paper examines the use of market-share thresholds (safe harbors) in evaluating whether a given vertical practice should be challenged. Such thresholds are typically found in vertical restraints guidelines (e.g., the 2000 Guidelines for the European Commission and the 1985 Guidelines for the U.S. Department of Justice). We consider a model of resale price maintenance (RPM) in which firms employ RPM to dampen downstream price competition. In this model, we find that restrictions on the use of RPM by a dominant firm can be welfare improving, but restrictions on the extent of the market that can be covered by RPM (i.e., the pervasiveness of the practice among firms in the industry) may lead to lower welfare and higher consumer prices than under a laissez-faire policy. Our results thus call into question the indiscriminate use of market-share thresholds in vertical cases.
Number of Pages in PDF File: 30 Keywords: vertical restraints, safe harbors, antitrust policy JEL Classification: L13, L41, L42 working papers seriesDate posted: June 27, 2007Suggested CitationContact Information
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