46 Pages Posted: 27 Oct 2015 Last revised: 3 Mar 2017
Date Written: February 28, 2017
We characterize the features of collusion involving retailers and their supplier, who engage in secret vertical contracts and all equally care about future profits (“vertical collusion”). We show such collusion is easier to sustain than collusion among retailers. The supplier pays retailers slotting allowances as a prize for adhering to the collusive scheme. In the presence of competing suppliers, vertical collusion can be sustained using short – term exclusive dealing in every period with the same supplier, if the supplier can inform a retailer that the other retailer did not offer the supplier exclusivity.
Keywords: vertical relations, tacit collusion, exclusive dealing, opportunism, slotting allowances
JEL Classification: L41, L42, K21, D84
Suggested Citation: Suggested Citation