Comparing vertical restraints

When faced with the need to protect dealer provision of promotional services for their products, manufacturers have continued to impose resale price maintenance (RPM) in preference to providing exclusive territories, even though the latter are legal while RPM is not. This paper compares RPM and territories, finding that RPM raises retail prices by less, but also supports less service provision than the exclusive territories alternative. Indeed, exclusive territories raise prices and generate more services than full manufacturer integration into distribution. This result calls into question the current contrasting legal treatment of territories and RPM.     

Portfolio constraints,differences in beliefs and bubbles

I propose an arbitrage-based theory of bubbles in economies with general portfolio constraints and differences in beliefs. I find that, in general, bubbles cannot exist unless the constraints restrict the demand for credit sufficiently to induce low interest rates. Speculation due to heterogeneous beliefs does not cause bubbles. Ruling out bubbles under asymmetric information requires stronger assumptions: the presence of some uninformed agents and mild portfolio restrictions (debt or borrowing constraints), or alternatively, the existence of some impatient and fully informed agents.     

The choice between resale price maintenance and exclusive territories: Evidence from litigation

A manufacturer's choice between resale price maintenance (RPM) and exclusive territories to protect dealer provided services is examined empirically. The relative efficacy of RPM in solving the free rider problem depends on the life cycle of the product being distributed. A manufacturer of a product with a long life cycle is more likely to protect its dealers' investment in service with exclusive territories, whereas RPM becomes the more probable restraint for products of short life spans. Data gleaned from vertical restraint litigation strongly support this hypothesis.The author wishes to thank Howard P. Marvel, Laura A. Boyd, and two anonymous referees for comments on earlier versions of this paper. The financial support of The Procter and Gamble Fund is also gratefully acknowledged. Any errors are mine alone.     

Vickrey auctions with reserve pricing

Summary. We generalize the Vickrey auction to allow for reserve pricing in a multi-unit auction with interdependent values. In the Vickrey auction with reserve pricing, the seller determines the quantity to be made available as a function of the bidders' reports of private information, and then efficiently allocates this quantity among the bidders. Truthful bidding is a dominant strategy with private values and an ex post equilibrium with interdependent values. If the auction is followed by resale, then truthful bidding remains an equilibrium in the auction-plus-resale game. In settings with perfect resale, the Vickrey auction with reserve pricing maximizes seller revenues.Received: 31 December 2002, Revised: 5 May 2003, JEL Classification Numbers: D44, C78, D82.Correspondence to: Lawrence M. AusubelThe authors gratefully acknowledge the generous support of National Science Foundation Grants SES-97-31025, SES-01-12906 and IIS-02-05489. We appreciate valuable comments from Ilya Segal. Special thanks go to Mordecai Kurz, who served as Larry's dissertation advisor and who introduced both authors to the economics profession back at IMSSS at Stanford. Congratulations and best wishes are extended to Mordecai and his family on the happy occasion of the publication of Assets, Beliefs, and Equilibria in Economic Dynamics: Essays in Honor of Mordecai Kurz, in which this article also appears.     

Revenue and efficiency effects of resale in first-price auctions

We study first-price auctions in a model with asymmetric, independent private values. Asymmetries lead to inefficient allocations, thereby creating a motive for resale after the auction is over. In our model, resale takes place via monopoly pricing—the winner of the auction makes a take-it-or-leave-it offer to the loser. Our goal is to compare equilibria of the first-price auction without resale (FPA) with those of the first-price auction with resale (FPAR). For the three major families of distributions for which equilibria of the FPA are available in closed form, we show that resale possibilities increase the revenue of the original seller. We also show by example that, somewhat paradoxically, resale may actually decrease efficiency.     

Vertical Control in Newly Regulated Economies

Abstract

This paper develops conceptual arguments to analyze RPM from the antitrust viewpoint. Through a general model, we conclude that minimum RPM in general would reduce consumer's price. Consequently, it could harm consumers only under very special circumstances, that can be checked by antitrust authorities in a very simple way. Thus, the paper suggests that the influence of the USA antitrust legislation and tradition in LDCs, and particularly in Chile, the country with the most advanced antitrust practice in the less developed world, has unnecessarily restricted franchising. Not surprisingly, though, the application of such dogmatic vision has created ways to by-pass the regulation, like vertical integration, that may be legal, but create cost for distribution channels.

RESUMEN

Este estudio desarrolla argumentos conceptuales para analizar el RPM desde la perspectiva del antitrust. A través de un modelo general, llegamos a la conclusión que, en forma general, un RPM mínimo reduciría el precio de consumo. Consecuentemente, sólo podría perjudicar a los consumidores bajo circunstancias muy especiales, que pueden ser investigadas por las autoridades antitrust en una manera muy simple. Por ene, este artículo sugiere que la influencia de la legislación antitrust estadounidense y los tradicionales LDCs, especialmente en Chile, el país con las prácticas antitrust más avanzadas del mundo menos desarrollado, ha restringido innecesariamente la concesión de franquicias (franchising). No es sorprendente, entonces, que la aplicación de una visión tan dogmática haya creado formas de circunvalar la norma, como la integración vertical que puede ser legal, pero crea un costo adicional para los canales de distribución.

RESUMO

Este estudo desenvolve argumentos conceituais, para analisar a Manutenção do Preço de Revenda (RPM), do ponto de vista antitruste. Através de um modelo comum, conclui-se que o mínimo de RPM, em geral, reduziria o preço ao consumidor. Conseqüentemente, ele só prejudicaria o consumidor em algumas circunstâncias muito especiais, que podem ser fiscalizadas pelas autoridades antitruste, de forma bem simples. Assim, este trabalho sugere que a influência da legislação antitruste americana e da tradição em Países Menos Desenvolvidos (LDCs), particularmente, no Chile, o país que possui a mais avançada prática antitruste do mundo menos desenvolvido, possui, desnecessariamente, franquias restritas. Embora não surpreenda que a aplicação de tal visão, tão dogmática, haja criado meios para contornar a regulamentação, como a integração vertical, que, apesar de legal, cria custos para os canais de distribuição.     

Auctions with both common-value and private-value bidders

This paper shows the existence of monotone pure-strategy equilibrium in auctions with both common-value bidders and private-value ones. In equilibrium, the common-value bidders bid less aggressively when there are more private-value bidders. Further, resale is discussed as an application.     

Auctions with resale and bargaining power

We show that when the weak bidder’s bargaining power in the resale market is weakened, the auctioneer’s revenue from the first-price auction with resale is lower. Using the idea of Coase Theorem, we show that when the resale market is a sequential bargaining model with no commitment, the auctioneer’s revenue is substantially reduced, and the ranking is the opposite of Hafalir and Krishna (2009). We establish a version of the Coase Theorem in the context of the auctions with resale. When Coase Theorem holds, we show that the revenue of the auction with resale is lower than the revenue of the same auction without resale. We also provide the existence and uniqueness of equilibrium for our model of auctions with resale.     

Book Prices in the UK Since the End of Resale Price Maintenance

After the Net Book Agreement was abandoned in 1995 and struck down by the Restrictive Practices Court in 1997 Restrictive Practices Court. 1997. Judgment in the matter of the Net Book Agreement, 1995 No 3 and No 4  [Google Scholar], retail book prices were widely expected to fall. Despite deeper and wider retail discounts, official indices show that book prices have subsequently risen more than general inflation. This apparent anomaly may be explained by an argument accepted at the 1962 Restrictive Practices Court hearing: that price competition would lead to concentration and greater buying power in bookselling and to bigger trade discounts from publishers, who would seek to maintain profits by raising list prices. Discounts by retailers would fail to compensate. Evidence provides some support for this explanation. While more research is required to confirm this analysis, it is relevant wherever there is debate about retention of resale price maintenance for books. It also supports the argument for case by case consideration of resale price maintenance, rather than condemnation on principle