Secret Two-Part Tariffs and Retailer Risk Aversion.
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| Title: | Secret Two-Part Tariffs and Retailer Risk Aversion. |
|---|---|
| Authors: | Lømo, Teis Lunde1 (AUTHOR) teis.lomo@uib.no |
| Source: | Review of Industrial Organization. Jun2025, Vol. 67 Issue 1, p69-82. 14p. |
| Subjects: | Wholesale prices, Direct costing, Prices, Risk aversion, Price increases |
| Abstract: | This paper studies a manufacturer that offers secret two-part tariffs to multiple retailers that compete in prices. Prior work on this setting has shown that, in equilibrium, wholesale prices equal marginal cost and profits vanish as retailers become undifferentiated. I extend the prior work by introducing demand uncertainty and downstream risk aversion. I show that if merely a single retailer is risk averse, all wholesale prices will lie above marginal cost. Intuitively, the manufacturer provides insurance to the risk-averse retailer by reducing its fixed fee and increasing the wholesale price above cost. The positive upstream margin in turn induces the manufacturer to divert sales toward the risk-averse retailer, which it does by increasing wholesale prices for the risk-neutral retailers as well. Relatedly, downstream risk aversion can increase industry and upstream profits compared to risk neutrality if retailers are close substitutes. [ABSTRACT FROM AUTHOR] |
| Copyright of Review of Industrial Organization is the property of Springer Nature and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.) | |
| Database: | Engineering Source |
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| Header | DbId: egs DbLabel: Engineering Source An: 185595767 AccessLevel: 6 PubType: Academic Journal PubTypeId: academicJournal PreciseRelevancyScore: 0 |
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| Items | – Name: Title Label: Title Group: Ti Data: Secret Two-Part Tariffs and Retailer Risk Aversion. – Name: Author Label: Authors Group: Au Data: <searchLink fieldCode="AR" term="%22Lømo%2C+Teis+Lunde%22">Lømo, Teis Lunde</searchLink><relatesTo>1</relatesTo> (AUTHOR)<i> teis.lomo@uib.no</i> – Name: TitleSource Label: Source Group: Src Data: <searchLink fieldCode="JN" term="%22Review+of+Industrial+Organization%22">Review of Industrial Organization</searchLink>. Jun2025, Vol. 67 Issue 1, p69-82. 14p. – Name: Subject Label: Subjects Group: Su Data: <searchLink fieldCode="DE" term="%22Wholesale+prices%22">Wholesale prices</searchLink><br /><searchLink fieldCode="DE" term="%22Direct+costing%22">Direct costing</searchLink><br /><searchLink fieldCode="DE" term="%22Prices%22">Prices</searchLink><br /><searchLink fieldCode="DE" term="%22Risk+aversion%22">Risk aversion</searchLink><br /><searchLink fieldCode="DE" term="%22Price+increases%22">Price increases</searchLink> – Name: Abstract Label: Abstract Group: Ab Data: This paper studies a manufacturer that offers secret two-part tariffs to multiple retailers that compete in prices. Prior work on this setting has shown that, in equilibrium, wholesale prices equal marginal cost and profits vanish as retailers become undifferentiated. I extend the prior work by introducing demand uncertainty and downstream risk aversion. I show that if merely a single retailer is risk averse, all wholesale prices will lie above marginal cost. Intuitively, the manufacturer provides insurance to the risk-averse retailer by reducing its fixed fee and increasing the wholesale price above cost. The positive upstream margin in turn induces the manufacturer to divert sales toward the risk-averse retailer, which it does by increasing wholesale prices for the risk-neutral retailers as well. Relatedly, downstream risk aversion can increase industry and upstream profits compared to risk neutrality if retailers are close substitutes. [ABSTRACT FROM AUTHOR] – Name: AbstractSuppliedCopyright Label: Group: Ab Data: <i>Copyright of Review of Industrial Organization is the property of Springer Nature and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract.</i> (Copyright applies to all Abstracts.) |
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| RecordInfo | BibRecord: BibEntity: Identifiers: – Type: doi Value: 10.1007/s11151-025-10010-8 Languages: – Code: eng Text: English PhysicalDescription: Pagination: PageCount: 14 StartPage: 69 Subjects: – SubjectFull: Wholesale prices Type: general – SubjectFull: Direct costing Type: general – SubjectFull: Prices Type: general – SubjectFull: Risk aversion Type: general – SubjectFull: Price increases Type: general Titles: – TitleFull: Secret Two-Part Tariffs and Retailer Risk Aversion. Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Lømo, Teis Lunde IsPartOfRelationships: – BibEntity: Dates: – D: 01 M: 06 Text: Jun2025 Type: published Y: 2025 Identifiers: – Type: issn-print Value: 0889938X Numbering: – Type: volume Value: 67 – Type: issue Value: 1 Titles: – TitleFull: Review of Industrial Organization Type: main |
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