Who Benefits from Resale-Below-Cost Laws?

48 Pages Posted: 10 Jun 2013

See all articles by Noriaki Matsushima

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Akira Miyaoka

Rissho University

Date Written: June 9, 2013

Abstract

We investigate the effect of banning resale-below-cost offers. There are two retailers with heterogeneous bargaining positions in relation to a monopolistic manufacturer. Each retailer sells two goods: one procured from the monopolistic manufacturer and the other, from a competitive fringe. In equilibrium, banning resale-below-cost offers can decrease the retailers' prices. The ban can benefit the weak retailer in terms of bargaining position and increase the total consumer surplus, although it harms the dominant retailer and the monopolistic manufacturer. Contrary to the basic scenario, when the weak retailer is horizontally separated, the ban benefits the monopolistic manufacturer.

Keywords: Loss-leader Pricing, Channel Power, Vertical Relations

JEL Classification: L13, L41, M38, D21

Suggested Citation

Matsushima, Noriaki and Miyaoka, Akira, Who Benefits from Resale-Below-Cost Laws? (June 9, 2013). ISER Discussion Paper No. 875, Available at SSRN: https://ssrn.com/abstract=2276776

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Akira Miyaoka

Rissho University ( email )

4-2-16
Osaki
Shinagawa, Tokyo 141-8602
Japan

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