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Title:Resale price maintenance and restrictions on dominant firm and industry-wide adoption PDF Logo
Authors:Foros, Øystein
Kind, Hans Jarle
Schaffer, Greg
Issue Date:2007
Series/Report no.:CESifo working paper 2032
Abstract:This paper examines the use of market-share thresholds (safe harbors) in evaluating whether a given vertical practice should be challenged. Such thresholds are typically found in vertical restraints guidelines (e.g., the 2000 Guidelines for the European Commission and the 1985 Guidelines for the U.S. Department of Justice). We consider a model of resale price maintenance (RPM) in which firms employ RPM to dampen downstream price competition. In this model, we find that restrictions on the use of RPM by a dominant firm can be welfare improving, but restrictions on the extent of the market that can be covered by RPM (i.e., the pervasiveness of the practice among firms in the industry) may lead to lower welfare and higher consumer prices than under a laissez-faire policy. Our results thus call into question the indiscriminate use of market-share thresholds in vertical cases.
JEL:L13
L41
L42
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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