Manufacturer collusion: Strategic implications of the channel structure

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors' own opinions and do not necessarily reflect those of the editor. Terms of use: Documents in AbstractWe investigate how the structure of the distribution channel affects tacit collusion between manufacturers. When selling through a common retailer, we find-in contrast to the conventional understanding of tacit collusion that firms act to maximize industry profits-that colluding manufacturers strategically induce double marginalization so that retail prices are above the monopoly level. This lowers industry profits but increases the profit share that manufacturers appropriate from the retailer. Comparing common distribution with independent (exclusive) distribution, we show that the latter facilitates collusion. Despite this result, common retailing leads to lower welfare because a common retailer monopolizes the downstream market. For the case of independent retailing, we also demonstrate that contract offers that are observable to the rival retailer are not necessarily beneficial for collusive purposes.

Relative-Performance Delegation destabilizes Upstream Collusion

“…We want to compare the model with delegation to the model with forward ownership in the case of partial collusion. In a model with forward ownership, Reisinger and Thomes (2017) show that for the case of non-binding retail, contract offers by the upstream rm that are observable to the rival retailer are not necessarily bene cial for collusive purposes which act as relative-performance delegation that upstream rm has incentive to deviate from collusion. 32 − 16γ − 31γ 2 + 8γ 3 + 8γ 4 2 > 0…”

Does Aftermarket Monopolization Facilitate Upstream Collusion?

“…Gilo and Yehezkel (2020) further analyze vertical collusion under secret supply contracts. In contrast to Reisinger and Thomes (2017), they show that a common upstream supplier can replace the observable supply contract to deter downstream firms from deviating. Gu et al (2019) show that the upstream collusion can balance the vertical externality and the horizontal externality in the vertical market.…”

“…Piccolo and Miklós-Thal (2012) argue that downstream firms with bargaining power can facilitate downstream collusion via observable supply contracts with high wholesale prices and negative fixed fees. Reisinger and Thomes (2017) consider upstream collusion through a common downstream retailer. They find that collusion through a common downstream retailer is more difficult and less profitable than colluding through exclusive retailers.…”