Wednesday, April 1, 2009
Posted by D. Daniel Sokol
Marie-Laure Allain (Department of Economics, Ecole Polytechnique) and Claire Chambolle (Department of Economics, Ecole Polytechnique) describe the Anti-Competitive Effects of Resale-Below-Cost Laws.
ABSTRACT: We show that resale-below-cost laws enable producers to impose industry-wide price-floors to retailers. This mechanism suppresses downstream competition but also and more surprisingly dampens upstream competition, leading to higher prices and lower welfare. Price-floor may be more profitable for producers than resale price maintenance contracts and, when a resale price maintenance restraint may have ambiguous effect on welfare, price-floors are always welfare damaging. Retailers' buyer power appears as a key for a price-floor to work out.