Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174910
Authors: 
Dertwinkel-Kalt, Markus
Köster, Mats
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6787
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We provide a novel intuition for the observation that many brand manufacturers have restricted their retailers’ ability to resell brand products online. Our approach builds on models of salience according to which price disparities across distribution channels guide a consumer’s attention toward prices and lower her appreciation for quality. Thus, absent vertical restraints, one out of two distortions - a quality or a participation distortion - can arise in equilibrium. The quality distortion occurs if the manufacturer provides either an inefficiently low quality under price salience or an inefficiently high quality in order to prevent price salience. The participation distortion arises as offline sales might be entirely abandoned in order to prevent prices from becoming salient. Both distortions are ruled out if vertical restraints are imposed. As opposed to the current EU legislation that considers a range of vertical restraints as being hardcore restrictions of competition per se, we show that these constraints can be socially desirable if salience effects are taken into account.
Subjects: 
salience
online sales
antitrust
vertical restraints
distribution channels
JEL: 
D21
K21
L42
Document Type: 
Working Paper

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