Vertical Collusion

Posted: 19 Aug 2019

See all articles by David Gilo

David Gilo

Tel Aviv University - Buchmann Faculty of Law

Yaron Yehezkel

Coller School of Management , Tel-Aviv University

Multiple version iconThere are 2 versions of this paper

Date Written: Febuary 1, 2019

Abstract

We characterize collusion involving secret vertical contracts between retailers and their supplier – who are all equally patient ("vertical collusion"). We show such collusion is easier to sustain than collusion among retailers. Furthermore, vertical collusion can solve the supplier’s inability to commit to charging the monopoly wholesale price when retailers are differentiated. The supplier pays retailers slotting allowances as a prize for adhering to the collusive scheme and rejects contract deviations. In the presence of competing suppliers, vertical collusion can be sustained using short – term exclusive dealing.

Keywords: vertical relations, tacit collusion, exclusive dealing, opportunism, slotting allowances

JEL Classification: L41, L42, K21, D8

Suggested Citation

Gilo, David and Yehezkel, Yaron, Vertical Collusion (Febuary 1, 2019). RAND Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3438226

David Gilo (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
+972-3-6406299 (Phone)

Yaron Yehezkel

Coller School of Management , Tel-Aviv University ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~yehezkel/

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