Friday, September 27, 2019

Vertical Collusion

David Gilo, Tel Aviv University - Buchmann Faculty of Law and Yaron Yehezkel, Coller School of Management , Tel-Aviv University have an interesting new paper on Vertical Collusion. Worth downloading!

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.

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