Exclusionary Minimum Resale Price Maintenance
New York University - Leonard N. School of Business - Department of Economics
University of Toronto - Rotman School of Management
NYU Working Paper No. 2451/31609
An upstream manufacturer can use minimum resale price maintenance (RPM) to exclude potential competitors. RPM lets the incumbent manufacturer transfer profits to retailers. If entry is accommodated, upstream competition leads to fierce down-stream competition and the breakdown of RPM. Hence, via RPM, retailers internalize the effect of accommodating entry on the incumbent's profits. Retailers may prefer not to accommodate entry; and, if entry requires downstream accommodation, entry can be deterred. We also discuss empirical and policy implications, as well as the exclusion-ary potential of other methods of sharing prots between upstream and downstream firms, such as slotting fees and revenue sharing.
Number of Pages in PDF File: 50
Date posted: August 18, 2011