Vertical collusion
We thank Ayala Arad, Giacomo Calzolari, Chaim Fershtman, Bruno Jullien, David Myatt (Editor), Markus Reisinger, Patrick Rey, Tim Paul Thomes, Noam Shamir, Yossi Spiegel, and three anonymous referees as well as participants at the MaCCI 2016 conference in Mannheim, the CRESSE 2016 conference in Rhodes, the Düsseldorf 2017 workshop on Vertical Chains, The STILE 2017 law and economics workshop, the ALEA 2018 annual meeting, and seminar participants at Tel-Aviv University, the Hebrew University, the Interdisciplinary Center in Hertzelia, Bar-Ilan University and the University of Bergamo for helpful comments. We thank the Israeli Science Foundation, the Cegla Institute, the Eli Hurvitz Institute for Strategic Management and the Henry Crown Institute for Business Research in Israel for financial assistance and Ayla Finberg, Lior Frank, Michael Leshem, Noam Lev, Hadar Shaked Itzkovitz, Yogev Sheffer, Haim Zvi Yeger and Nofar Yehezkel, for research assistance.
Abstract
We characterize collusion involving secret vertical contracts between retailers and their supplier—who are all equally patient (“vertical collusion”). We show such collusion is easier to sustain than collusion among retailers. Furthermore, vertical collusion can solve the supplier's inability to commit to charging the monopoly wholesale price when retailers are differentiated. The supplier pays retailers slotting allowances as a prize for adhering to the collusive scheme and rejects contract deviations. In the presence of competing suppliers, vertical collusion can be sustained using short-term exclusive dealing.
