The economics of dual pricing in vertical agreements

Dual pricing in vertical agreements is the practice of charging the same distributor a higher price for products intended to be resold online than for products intended to be resold offline. In this article, we review and discuss the economics behind dual pricing. We argue that dual pricing can benefit consumers and raise welfare for two distinct reasons. First, dual pricing can incentivize valuable service investments at brick-and-mortar stores. Second, dual pricing can serve as a means to achieve efficient channel coordination when intra-brand competition is more intense in the online channel than in the offline channel.

1. Dual pricing in vertical agreements is the practice of charging the same distributor a higher price for products intended to be resold online than for products intended to be resold offline. [1] It belongs to a broader class of vertical agreements that treat a distributor’s online and offline sales differently, in ways that, either directly or indirectly, limit or discourage online sales. Examples include agreements that impose a limit on the share of online sales in the total sales made by a distributor, and agreements in which a distributor obtains wholesale price discounts that are increasing in the share of the distributor’s offline sales in its total sales over some previous time period. [2], [3] 2. The appropriate treatment of dual pricing is a contentious topic in the ongoing

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Jeanine Miklos-Thal, Gregory Shaffer, The economics of dual pricing in vertical agreements, May 2022, Concurrences N° 2-2022, Art. N° 106194, www.concurrences.com

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