Developments, Policies and Enforcement Trends in the US and Korea
Edited by Jay P. Choi, Wonhyuk Lim and Sang-Hyop Lee
Chapter 10: Retail price coordination in Korean department stores: the specific purchase contract
This chapter reviews potential anticompetitive effects of price coordination based on the specific purchase contract (SPC), popular in the Korean department store market. SPC enables the producer to set the retail price, while the retailer sets a part of the producer’s cost by setting the sales fee proportional to the sales of the good. SPC price coordination can be as anticompetitive as resale price maintenance (RPM). The author provides a mathematical model, with two retailers and one producer, to demonstrate that the harm to social welfare can be even greater under SPC. There is a potential welfare benefit in studying and reviewing the anticompetitive nature of these business practices, because SPC-based price coordination is a business practice shared in common not only by department stores in Korea, but also in Japan and the rapidly growing department stores in China.
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