This paper benefited from helpful discussions with Jean Tirole. We would like to thank Stéphane Caprice and seminar participants at our home institutions and at the University of Essex.Thibaud Vergé would also like to thank the Leverhulme Trust for financial support (CMPO, University of Bristol). AbstractA supplier is known to be subject to opportunism when contracting secretly with downstream competitors, particularly when downstream firms have "passive beliefs." We stress that in many situations, an equilibrium with passive beliefs may not exist and passive beliefs appear less plausible than "wary beliefs," introduced by McAfee and Schwartz. We show that in a broad range of situations, equilibria with wary beliefs exist and reflect opportunism. Last, we confirm the insight, derived by O'Brien and Shaffer using a more ad-hoc equilibrium concept, that RPM eliminates the scope for opportunism.

Dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of RPM. We analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers. We show that RPM indeed limits the exercise of competition at both levels and can generate industry-wide monopoly pricing. The impact on prices depends on the extent of potential competition at either level as well as on the parties' influence in determining the terms of the contracts. Our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies.

We analyze the competitive effects of various contractual provisions in a situation where rival retailers make offers to a common manufacturer. In contrast to Marx and Shaffer (2007, Rand Journal of Economics, 38(3), 823–843), who find that a strong retailer can use slotting allowances (that is, upfront payments from manufacturers) to exclude its weaker rival, we show that foreclosure is no longer inevitable once retailers' offers can be contingent on the relationship being exclusive or not. There then exist equilibria that sustain the industry monopoly outcome; moreover, as long as retailers can use non‐linear tariffs, such equilibria exist irrespectively of whether slotting allowances are allowed or banned. Non‐contingent contracts, on the other hand, necessarily lead to exclusion, with or without slotting allowances. A ban on slotting allowances may therefore prove ineffective, while a ban on exclusive dealing options in supply contracts leads to foreclosure.