Thursday, August 15, 2013
Posted by D. Daniel Sokol
Noriaki Matsushima, Institute of Social and Economic Research, Osaka University and Akira Miyaoka, Graduate School of Economics, Osaka University ask Who benefits from resale-below-cost laws?
ABSTRACT: We investigate the effect of banning resale-below-cost offers. There are two retailers with heterogeneous bargaining positions in relation to a monopolistic manufacturer. Each retailer sells two goods: one procured from the monopolistic manufacturer and the other, from a competitive fringe. In equilibrium, banning resale-below-cost offers can decrease the retailers' prices. The ban can benefit the weak retailer in terms of bargaining position and increase the total consumer surplus, although it harms the dominant retailer and the monopolistic manufacturer. Contrary to the basic scenario, when the weak retailer is horizontally separated, the ban benefits the monopolistic manufacturer.