Discussion Paper Details

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Title: Two Tales on Resale

Author(s): Felix Höeffler and Klaus M. Schmidt

Publication Date: April 2007

Keyword(s): non-spatial product differentiation, resale regulation, spatial product differentiation, vertical restraints and wholesale

Programme Area(s): Industrial Organization

Abstract: In some markets vertically integrated firms sell directly to final customers but also to independent downstream firms with whom they then compete on the downstream market. It is often argued that resellers intensify competition and benefit consumers, in particular when wholesale prices are regulated. However, we show that (i) resale may increase prices and make consumers worse off and that (ii) standard 'retail minus X regulation' may increase prices and harm consumers. Our analysis suggests that this is more likely if the number of integrated firms is small, the degree of product differentiation is low, and/or if competition is spatial.

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Bibliographic Reference

Höeffler, F and Schmidt, K. 2007. 'Two Tales on Resale'. London, Centre for Economic Policy Research.