RESALE PRICE MAINTENANCE AND ANTITRUST POLICY

Some scholars would legalize all purely vertical resale price maintenance (RPM). They acknowledge that RPM can harm consumers when it facilitates horizontal collusion among manufacturers or dealers. But when RPM is purely vertical (i.e., when it is imposed by a manufacturer acting independently), they argue that it must be procompetitive. Recent theoretical research has shown, however, that purely vertical RPM can reduce economic efficiency. This result occurs when the higher prices and dealer services induced by RPM benefit marginal consumers but substantially reduce the welfare of intramarginal consumers, who would have preferred the product without the services at a lower price. Since these circumstances are empirically plausible, a rule of per se legality may not be appropriate. At the same time, evaluating RPM under the rule of reason might not be workable. Anticompetitive instances of the type described could be difficult to prove. These research findings, therefore, are most consistent with a rule of per se illegality for RPM, with exceptions for situations in which RPM is most likely to be pro-competitive (e.g., new entry).     

Laboratory Testbeds and Non-Market Valuation: The Case of Bidding Behavior in a Second-Price Auction with an Outside Option

Researchers now use the lab to examine the behavioral underpinnings of valuation before the field application which some argue has less experimental control. But lab valuation work raises its own set of concerns when it uses private goods to explore non-market valuation behavior because private goods have substitutes often unaccounted for in the lab. Therefore, the lab as a tool to testbed field valuation work may be limited. Herein we design an induced valuation experiment to explore bidding behavior in a second-price auction with an outside option that is a perfect substitute for the auction commodity. Theory predicts that rational bidders will consider the prices of outside options when formulating bidding strategies, and will reduce their bids whenever their resale value exceeds the price of the outside option. Our results suggest that bidders account for outside options when formulating bids with behavior following comparative static predictions. In addition, we provide evidence concerning hypothetical versus actual behavior with induced values – the data suggesting a hypothetical bias in the level of bids but not in bid shaving.     

Generic medicine pricing in Europe: current issues and future perspective

Abstract

This editorial discusses a number of trends affecting the pricing of generic medicines in Europe. With respect to pricing, recent evidence has emerged that European generic medicine manufacturers face competition from Indian manufacturers; that the price level of generic medicines varies substantially between European countries; and that generic medicine manufacturers engage in competition by discount rather than price competition in France, The Netherlands and the UK. These trends suggest that there may be scope for further reducing the prices of generic medicines in several countries.

In relation to reference pricing, most European countries have incorporated market incentives within reference pricing systems with a view to promoting price competition. The European experience indicates that the generic medicines industry delivers competitive prices under a reference pricing system if demand-side policies are in place that stimulate physicians, pharmacists and patients to use generic medicines.

Finally, caution needs to be exercised when focusing on the drivers of generic medicine pricing as these drivers not only vary between countries, but may also vary within a country. Manufacturers of originator and generic medicines do not take a single pricing approach following patent expiry, but vary their pricing strategy from molecule to molecule.     

产业垂直关联、转售价控制与合谋非效率：来自中国公司的经验证据*

产业组织间合谋问题包含产业垂直间及水平间合谋。转售价控制作为产业垂直间合谋竞争者地位主要差异表现,其整体经济价值的决定在动态竞争环境下面临着原有合谋解的瓦解和新合谋解达成的可能。本文理论证明,动态竞争环境下两家同质化的制造商分别使用各自的服务商体系其结果可能会带来更大的行业整体利润。本文应用动态面板技术,以中国最具活力的两个三角地区为实证对象进行验证,从社会整体福利角度证明这种非合谋方式是更有效率的。本文得出的结论主要有两个：一是从组织间的垂直联系看,合谋是一种非效率活动,且各自服务商有非合谋的冲动,其冲动能力大小与企业创新外部性和服务商的谈判力密切相关;二是间接证明了制造业与服务业的合谋更多的是一种经济价值分割而非创造,现有的产业间垂直关联是脆弱非平衡态,这种非平衡态存在着临界条件。本文基于上述结论提出了相应的建议和对策。     

ON THE PROFITABILITY OF RESALE PRICE MAINTENANCE WHEN DEMAND IS UNCERTAIN

A previous study finds that in a market where a manufacturer faces uncertain demand and sells to consumers through competitive retailers, the manufacture wishes to support adequate retail inventories by imposing resale price maintenance (RPM). I show that if retail inventories are allocated to consumers through first‐come‐first‐served rule rather than efficient rationing rule in the game with unconstrained retail competition, imposing RPM may not be profitable. It may not encourage more retail inventories either. RPM may also lower consumer surpluses and social welfare. This study casts some doubt on the demand uncertainty theory that supports RPM.     

The Telecommunications Act at three years: an economic evaluation of its implementation by the Federal Communications Commission

The competitive free-for-all that Congress envisioned in the 1996 Telecommunications Act has for the most part not appeared. The Act calls for two forms of regulatorily-assisted entry into local markets: lease of network elements and resale. The FCC has decreed that the charges for those elements and the resale discounts must emulate the costs of an ideally-efficient firm. This standard is in fact not efficient, and the FCC’s attempt to jump-start the entry of competitors in this way has short-circuited the competitive process itself and jeopardized achievement of the goals of the Act.     

Pricing,distribution and the supply of storage

The Belgian nitrogen fertilizer cartel announces each year a price schedule which is enforced during the coming twelve months. These prices are resale prices to final users and reflect changes in costs of storage. A game-theoretic model is set up to rationalize this behavior for the case of instantaneous final demands and a large number of distributors. Habit formation in final demand is then shown to lead to even more flexible prices, while transferability over time is seen to favor more rigid prices. It is finally suggested that vertical integration into a competitive distribution sector can be profitable because it restores the possibility of intertemporal price discrimination.     

First-price auctions with resale: the case of many bidders

We study first-price auctions with resale when there are many bidders and derive existence and characterization results under the assumption that the winner of the initial auction runs a second-price auction with an optimal reserve price. The fact that symmetrization fails when there are more than two bidders has been observed before, but we also provide the direction: weaker bidders are less likely to win than stronger ones. For a special class of distributions and three bidders, we prove that the bid distributions are more symmetric with resale than without. Numerical simulations suggest that the more bidders there are, the more similar the allocation is to the case without resale, and thus, the more asymmetric the bid distributions are between strong and weak bidders. We also show in an example that the revenue advantage of first-price auctions over second-price auctions is positive, but decreasing in the number of bidders.     

Revenue ranking of first-price auctions with resale

When the price setter in post-auction resale is chosen according to exogenous probabilities, Hafalir and Krishna (2008) [2] showed that the first-price auction brings more expected revenues than the second-price auction with truth-bidding bidders. We complete their revenue ranking by proving that the first-price auction produces higher expected revenues the higher the probability the auction winner sets the resale price.     

The determinants of dealership structure: Empirical analysis of the Chinese auto market

This paper investigates the factors that affect manufacturers’ decisions to grant local monopoly to a dealer and the factors that determine the dealer’s status of sole dealership in the Chinese automobile market. Our empirical findings suggest that manufacturer decisions depend on dealers’ retail network: manufacturers are inclined to choose a sole dealer for their brands if that dealer also has retail outlets for substitute brands in the local market and to choose multiple dealers otherwise. These findings can be explained by the theory proposed by [Mathewson, G. F., Winter, R. A., 1994. Territorial restrictions in franchise contracts. Economic Inquiry 32 (2), 181–192.], who suggest that manufacturers transfer the exclusive right of resale from themselves to dealers only if dealers’ contribution is crucial to the vertical relationship. When dealers also have extensive retail channels for other brands, their retail efforts and experience become crucial to brand success, and thus manufacturers are more likely to offer them sole resale rights. Moreover, our empirical findings suggest that manufacturers also consider product quality and market conditions when making their decisions.     

碳交易及补贴机制下供应链差别定价研究

研究了碳交易机制、补贴机制以及碳交易及补贴机制下，一个二级供应链中普通产品和低碳产品竞争的差别定价策略，通过求解Stackelberg博弈模型得出单一的补贴政策并不能激励制造商进行节能减排，应与碳交易机制结合使用，其节能减排效果优于单一的碳交易机制。最后通过一个算例分析验证了碳交易及补贴机制的有效性。研究表明：碳交易价格升高到一定程度时，普通产品的零售价批发价均升高，低碳产品的价格均下降，普通产品的销量下降，低碳产品销量上升，碳排放总量下降；随着低碳补贴的增加，普通产品的零售价，低碳产品的批发价、零售价均降低，普通产品的销量下降，低碳产品的销量上升，其中低碳产品的价格和需求量对低碳补贴的反应更加敏感，使碳排放量降低的同时还提高了制造商和零售商的利润。     

Technical change and the “tendency of the rate of profit to fall”

For the most part, the discussion of Marx' falling rate of profit has been of a qualitative and fairly imprecise nature. In particular, the transformation problem concerning the relationship between the price and value rates of profit is usually not adequately dealt with. The present article defines the various concepts rigorously and demonstrates the relationship between the price and value concepts. It is then shown that technical change which competitive capitalists will introduce always raises the rate of profit, if real wages are constant; that these viable technical changes are always socially desirable; but that there are socially desirable technical changes which will not be introduced under competitive capitalism. Some of these desirable technical changes would cause the profit rate to fall. Any efforts to demonstrate a falling rate of profit as a consequence of technical change must therefore concentrate on the relationship between technical innovation and changes in the real wage.     

COMMENTS ON MARVEL: HOW FAIR IS FAIR TRADE?

Each of the papers in this symposium concludes with policy recommendations regarding the legality of resale price maintenance (RPM). The legal standard used to judge RPM affects the entire universe of manufacturer control over resale prices. Therefore, policy recommendations are valid only to the extent that the proffered economic theory applies to a substantial portion of that universe. My comments focus primarily on how much of the RPM universe is addressed by Marvel's (1985) explanations in “How Fair is Fair Trade?” If an economic theory, no matter how interesting academically, describes only a small minority of RPM instances, it should not form the basis for public policy.     

Floor-level premiums in private housing: the case of condominiums in Singapore

Using a sample consists of 3367 actual condominium sales transacted in resale market from May 2012 to April 2015 from the Singapore Urban and Redevelopment Authority, a hedonic pricing model is used to investigate for the presence of floor-level premiums in the private housing market, condominium, in District 23 of Singapore. Unit size, types of land tenure and the distance to the nearest mass rapid transit (MRT) station are also used as other independent variables. The estimated coefficient of each of these independent variables is statistically significant. Each of these independent variables also has positive estimated coefficient, suggesting that they have positive effects on condominium resale prices. Main findings are (a) there is a presence of floor-level premium; (b) the condominiums with a distance more than 400 m to the MRT station get higher resale prices; and (c) there is an increasing effect of floor level on condominium price.     

Selling an asset to a competitor

A seller decides whether to allocate an item among two potential buyers. The seller and buyer 1 interact ex post in such a way that each of them suffers a negative externality if the other possesses the item. We show that the optimal allocation rule favors buyer 2, who does not interact ex post with the seller, and in particular bidder 1 may not obtain the good even if his valuation is highest. The auction is therefore subject to resale. When resale is possible, the seller must distort the original auction. We show that the mechanism depends crucially on the way resale is organized ex post. The seller may decide to always allocate the good to the agent with the highest valuation when rents are fully extracted by an intermediary on the resale market. However, she may resort to a stochastic mechanism when the winner of the primary auction has full bargaining power in the resale stage.     

Search, common knowledge, and competition

This paper analyzes the effects of buyer search costs and seller private and common knowledge on seller competition. It shows that lack of common knowledge results in the equilibrium price continuously decreasing to the perfectly competitive one as buyer search costs for price decrease from positive for all buyers to zero for all buyers, even if each market agent's uncertainty (in the private knowledge) is small. At the same time, if the uncertainty of each seller about buyer valuations is small, the effects of a small change in the search costs or of information structure on pricing may be large (but continuous).     

DEMAND UNCERTAINTY AND RESALE PRICE MAINTENANCE

When retailers must commit to shipment quantities prior to resolution of demand uncertainty, manufacturer stipulation of a minimum retail price is likely to be profitable for the manufacturer and not damaging to the retailers. The reason is simple: if demand turns out to be low, the unfettered market-clearing price can lie below the price that maximizes total sales revenue. A minimum retail price that is binding in the low-demand state can thus increase total revenue even though it saddles retailers with unsold merchandise. The ubiquity of full reimbursement for returns in Japan, even though it is in theory merely a second-best way of achieving minimum retail price stipulations, reveals important aspects of manufacturer maintenance of retail prices having to do with enforcement problems, the allocation of risk-bearing, and economic incentives. These aspects of resale price maintenance (RPM) are relevant to the normative evaluation of the special exemptions for RPM that Japan's Fair Trade Commission has long maintained but is now phasing out.     

English auctions with resale: An experimental study

I design and test a simple English auction and two English auctions with resale, but with different informational backgrounds. All three treatments theoretically have the same equilibrium. I find, however, that the possibility of resale alters behavior significantly. In the two treatments with resale, subjects deviated from both the Nash prediction and the common results about bidding behavior in English auctions. Subjects tend to overbid, when they are certain they can reap the whole surplus in the resale market. I employ different models like QRE and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants, that is, as rational decision making when anticipating others to make errors. When the outcome of the resale market is not certain, there is significant signaling behavior and auction prices tend to be lower than the Nash prediction.     

Monopoly and the choice of product characteristics

Monopoly firms producing large, indivisible goods may be able to effect perfect price discrimination by charging an all-or-none implicit price for each product characteristic. In that case, a monopolist will provide the same vector of product characteristics (i.e., the same product ‘quality’) as will a competitive industry; and, perhaps more surprisingly, produce the same quantity of the good. With all-or-none pricing, monopoly power leads to a higher product price, but no change in product quality or output.