Vertical Practices Facilitating Exclusion

Abstract

Resale price maintenance (RPM), slotting fees, loyalty rebates and otherrelated vertical practices can allow an incumbent manufacturer totransfer profits to retailers. If these retailers were to accommodateentry, upstream competition could lead to lower industry profits and thebreakdown of these profit transfers. Thus, in equilibrium, retailers caninternalize the effect of accommodating entry on the incumbent’sprofits. Consequently, if entry requires downstream accommodation, entrycan be deterred. We discuss policy implications of this aspect ofvertical contracting practices.