The Theory of Price Collars: The Linking of Prices in a Market Channel to Redress the Exercise of Market Power
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The marketing channels for many goods involve the production of a raw commodity that is
processed and then distributed to retailers for sale to consumers. Either the processing industry
or the retailing industry or both may exercise
substantial market powe
r ultimately against raw
commodity suppliers or consumer
s, the disorganized (competitive)
economic groups at the ends
of the market channel. This paper develops a theory of price collars to regulate pricing in such a
channel. Price collars link raw product, wholesale and retail prices but do not explicitly set such
prices. For example, a wholesale price collar could limit the wholesale price to 140% of the raw
commodity price, and a retail price collar could limit retail price to 130% of the wholesale price.