Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption
Norwegian School of Economics (NHH) - Department of Business and Management Science
Hans Jarle Kind
Norwegian School of Economics & Business Administration (NHH); CESifo (Center for Economic Studies and Ifo Institute); Norwegian School of Economics (NHH) - Department of Economics
University of Rochester - Simon Business School
CESifo Working Paper Series No. 2032
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
Date posted: June 27, 2007
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