In a vertically related market where the number of manufacturer-retailer hierarchies is endogenously determined by free entry, we investigate the impact of vertical price restraints on the free-entry equilibrium and its welfare properties under asymmetric information within each supply hierarchy. We compare the legal regimes of laissez-faire and ban on resale price maintenance (RPM) under different entry decision modes. Under upstream entry, laissez-faire generates higher entry and increases consumer surplus, but a ban on RPM enhances total welfare. Socially excessive entry occurs under both legal regimes, and the entry bias declines with the severity of the asymmetric information problem. Conversely, under downstream entry, a ban on RPM stimulates entry and consumer surplus, but laissez-faire can be total welfare superior. Our results provide antitrust policy implications about vertical price control.

Bonazzi, L., Fiocco, R., Piccolo, S. (2021). Vertical Price Restraints and Free Entry Under Asymmetric Information. JOURNAL OF INDUSTRIAL ECONOMICS, 69(4), 854-899 [10.1111/joie.12272].

Vertical Price Restraints and Free Entry Under Asymmetric Information

Bonazzi L. M.
;
2021

Abstract

In a vertically related market where the number of manufacturer-retailer hierarchies is endogenously determined by free entry, we investigate the impact of vertical price restraints on the free-entry equilibrium and its welfare properties under asymmetric information within each supply hierarchy. We compare the legal regimes of laissez-faire and ban on resale price maintenance (RPM) under different entry decision modes. Under upstream entry, laissez-faire generates higher entry and increases consumer surplus, but a ban on RPM enhances total welfare. Socially excessive entry occurs under both legal regimes, and the entry bias declines with the severity of the asymmetric information problem. Conversely, under downstream entry, a ban on RPM stimulates entry and consumer surplus, but laissez-faire can be total welfare superior. Our results provide antitrust policy implications about vertical price control.
Articolo in rivista - Articolo scientifico
Vertical Price Restraints; Free Entry; Asymmetric Information
English
2021
69
4
854
899
none
Bonazzi, L., Fiocco, R., Piccolo, S. (2021). Vertical Price Restraints and Free Entry Under Asymmetric Information. JOURNAL OF INDUSTRIAL ECONOMICS, 69(4), 854-899 [10.1111/joie.12272].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/487302
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