Tuesday, March 11, 2014
John Asker (NYU) and Heski Bar-Isaac (Toronto) have a brilliant paper on Raising Retailers’ Profits: On Vertical Practices and the Exclusion of Rivals.
ABSTRACT: Resale price maintenance (RPM), slotting fees, loyalty rebates and other related vertical practices can allow an incumbent manufacturer to transfer pro ts to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry pro ts and the breakdown of these pro t transfers. Thus, in equilibrium, retailers can internalize the e¤ect of accommodating entry on the incumbents pro ts. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.