Raising Retailers’ Profits: On Vertical Practices and the Exclusion of Rivals | Zendy

John Asker | Zendy; Heski BarIsaac | Zendy

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Raising Retailers’ Profits: On Vertical Practices and the Exclusion of Rivals

Author(s) -

John Asker,

Heski BarIsaac

Publication year - 2014

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.104.2.672

Subject(s) - accommodation , competition (biology) , economics , barriers to entry , profit (economics) , downstream (manufacturing) , raising (metalworking) , industrial organization , business , upstream (networking) , vertical restraints , free entry , resale price maintenance , microeconomics , incentive , marketing , market structure , ecology , computer network , neuroscience , computer science , biology , geometry , mathematics

Resale price maintenance (RPM), slotting fees, loyalty rebates, and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent's profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.

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