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Fair Pricing, Upstream Market Power, and Vertical Restraint

Author

Listed:
  • Stephen F. Hamilton

    (Department of Economics, California Polytechnic State University)

  • Benjamin Ouvrard

    (Grenoble Applied Economics Laboratory)

Abstract

Fair pricing standards are used in various industries, encompassing fair trade, labor practices, and state-regulated pricing. We demonstrate that fair pricing can serve as a vertical restraint by a dominant manufacturer on its retailers to fully coordinating prices in a multi-product distribution channel with fair priced and conventional goods. We identify buyer market power by the manufacturer in the upstream market as a novel role for a manufacturer to impose a vertical restraint on retailers in the downstream market, and characterize the vertical restraint that maximizes collective rents in terms of demand-side and supply-side diversion ratios.

Suggested Citation

  • Stephen F. Hamilton & Benjamin Ouvrard, 2024. "Fair Pricing, Upstream Market Power, and Vertical Restraint," Working Papers 2402, California Polytechnic State University, Department of Economics.
    • Handle: RePEc:cpl:wpaper:2402
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    File URL: https://drive.google.com/file/d/1r46cMnplNvLgL7QVXH5q3Erua02uo9OK/view?usp=drive_link
    File Function: First version, 2024
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    More about this item

    Keywords

    Fair pricing; vertical restraint; buyer market power;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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