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Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption

30 Pages Posted: 27 Jun 2007  

Øystein Foros

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

Greg Shaffer

University of Rochester - Simon Business School

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Date Written: June 2007

Abstract

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.

Keywords: vertical restraints, safe harbors, antitrust policy

JEL Classification: L13, L41, L42

Suggested Citation

Foros, Øystein and Kind, Hans Jarle and Shaffer, Greg, Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption (June 2007). CESifo Working Paper Series No. 2032. Available at SSRN: https://ssrn.com/abstract=996795

Øystein Foros

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Hans Jarle Kind (Contact Author)

Norwegian School of Economics & Business Administration (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 583 890 (Phone)
+47 55 583 901 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Greg Shaffer

University of Rochester - Simon Business School ( email )

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