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Article
Vertical Restraints and Horizontal Control
The RAND Journal of Economics
  • Robert Innes, University of Arizona
  • Stephen F. Hamilton, California Polytechnic State University - San Luis Obispo
Publication Date
4-1-2009
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.

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Publisher statement
Published by Wiley-Blackwell.
Citation Information
Robert Innes and Stephen F. Hamilton. "Vertical Restraints and Horizontal Control" The RAND Journal of Economics Vol. 40 Iss. 1 (2009) p. 120 - 143
Available at: http://works.bepress.com/shamilto/1/