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Vertical restraints and horizontal control
Author(s) -
Innes Robert,
Hamilton Stephen F.
Publication year - 2009
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2008.00058.x
Subject(s) - vertical restraints , business , control (management) , duopoly , horizontal and vertical , vertical integration , accommodation , variety (cybernetics) , competition (biology) , industrial organization , marketing , economics , microeconomics , incentive , computer science , ecology , management , geodesy , neuroscience , artificial intelligence , cournot competition , biology , geography
This article considers vertical restraints in a setting in which duopoly retailers each sell more than one manufactured good. Vertical restraints by a dominant manufacturer enable the firm to acquire horizontal control over a competitively supplied retail good. The equilibrium contracts produce symptoms that are consistent with a variety of observed retail practices, including slotting fees paid to retailers by competitive suppliers, loss leadership, and predatory accommodation with below‐cost manufacturer pricing for the dominant brand(s). Applications are developed for supermarket retailing, where the manufacturer of a national brand seeks to control the retail pricing of a supermarket's private label, and for convenience stores, where a gasoline provider seeks to control the retail pricing of an in‐store composite consumption good .