Title

Vertical Restraints and Horizontal Control

Author Info

Robert Innes, University of Arizona
Stephen F. Hamilton, California Polytechnic State University - San Luis ObispoFollow

Recommended Citation

Postprint version. Published in The RAND Journal of Economics, Volume 40, Issue 1, Spring April 1, 2009, pages 120-143.

The definitive version is available at https://doi.org/10.1111/j.1756-2171.2008.00058.x.

Abstract

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.

Disciplines

Economics

Copyright

2009, RAND.

Publisher statement

Published by Wiley-Blackwell.