Lear Laboratorio di economia antitrust regolamentazione Price Relativities

Lear - Laboratorio di economia, antitrust, regolamentazione Price Relativities Agreements Theories of harm and economic justifications Paolo Buccirossi ACE - Paris, 26 October 2012

Lear - Laboratorio di economia, antitrust, regolamentazione Index 1. A definition of Price Relativities Agreement 2. A comparison with Across-Sellers PRAs and RPM 3. Theories of harm 4. Economic justifications 5. Conclusions 2

Lear - Laboratorio di economia, antitrust, regolamentazione Price Relativities Agreements Subject that pays the price regulated by the agreement A’s retail price is a function of B’s retail price 3

Lear - Laboratorio di economia, antitrust, regolamentazione Across-Sellers PRAs Parties to the agreement A’s price is a function of its competitors price Subject that pays the price regulated by the agreement 4

Lear - Laboratorio di economia, antitrust, regolamentazione Resale Price Maintenance Subject that pays the price regulated by the agreement A’s retail price is NOT a function of B’s retail price 5

Lear - Laboratorio di economia, antitrust, regolamentazione Theory of harm for Across-Sellers PRAs/1 1. Softening competition (Hay, 1982; Salop, 1986; Corts, 1995; Hviid and Shaffer, 1999 …) How: Reduce competitors’ demand price elasticity when they undercut Is this theory of harm appropriate also to Pricing Relativities Agreement? YES How: Reduce rival manufacturer’s (indirect) demand price elasticity when it undercuts wholesale price 6

Lear - Laboratorio di economia, antitrust, regolamentazione Theory of harm for Across-Sellers PRAs/2 2. Entry foreclosure (Salop, 1986; Arbatskaya, 2001) How: (Same as above) Reduce potential competitors’ demand price elasticity when they undercut Is this theory of harm appropriate also to Pricing Relativities Agreement? YES, if price relativities are set with respect to the retail price of entrants (unlikely) How: Reduce potential rival (indirect) demand price elasticity when it enters with a lower wholesale price 7

Lear - Laboratorio di economia, antitrust, regolamentazione Theory of harm for RPM 1. Facilitating collusion (Mathewson and Winter, 1998; Julien and Rey, 2007) How: Retail prices are less responsive to change in retail costs -> wholesale prices can be inferred by observing retail prices -> increased transparency Is this theory of harm appropriate also to Pricing Relativities Agreement? YES How: Retail prices are less responsive to change in retail costs, etc. 8

Lear - Laboratorio di economia, antitrust, regolamentazione Economic justifications Across-Sellers PRAs 1. Signalling low cost/price (Winter, 2001; Moorthy and Winter, 2006; Hviid, 2010) Necessary condition: Buyers have imperfect information on prices but can easily observe the pricing policy Is this economic justification appropriate also to Pricing Relativities Agreement? NO Why: End consumers do not observe the pricing policy 9

Lear - Laboratorio di economia, antitrust, regolamentazione Economic justifications RPM 1. Double marginalization (or other vertical coordination problem) (Telser, 1960; Mathewson and Winter, 1998) How: Retail price is delegated to the manufacturer and “specializes” in maximizing vertically integrated profits; wholesale price becomes a “profit distribution” variable Is this economic justification appropriate also to Pricing Relativities Agreement? YES (if unilateral) Why: If unilateral, the retail price is delegated to the manufacturer who can set the price differential so as to maximize vertically integrated profits; wholesale price “mainly” used to distribute profits between the manufacturer and the retailer 10

Lear - Laboratorio di economia, antitrust, regolamentazione Conclusions • “Object infringement” inappropriate • A full fledged analysis of the possible theories of harm and efficiency justifications is recommended • “Some” research desperately needed 11

Lear - Laboratorio di economia, antitrust, regolamentazione Lear – Laboratorio di economia, antitrust, regolamentazione www. learlab. com paolo. buccirossi@learlab. com Via di Monserrato, 48 00186 Roma Tel. +39 06 68 300 530 Place du Grand Sablon, 36 B-1000 Brussels Tel. +32 (0) 2 289 13 47 12