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Retailer Heterogeneity, Intra-Brand Competition and Social Welfare

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  • Hao Wang

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    Abstract

    This paper considers a model where a manufacturer sells its product to consumers through competitive retailers who are heterogeneous in marginal distribution costs and geographic locations. We study the welfare implications of resale price maintenance (RPM), which eliminates the intra-brand competition. We show that with RPM, the manufacturer can make more profit at the cost of the consumers. RPM helps the high-cost retailers to stay competitive in the market, and therefore increases the total distribution cost of the society. We suggest that antitrust authorities should be concerned when intra-brand competition is lessened. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s10842-005-3720-2
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Industry, Competition and Trade.

    Volume (Year): 5 (2005)
    Issue (Month): 2 (June)
    Pages: 87-97

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    Handle: RePEc:kap:jincot:v:5:y:2005:i:2:p:87-97

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    Web page: http://springerlink.metapress.com/link.asp?id=105724

    Related research

    Keywords: retailer heterogeneity; intra-brand competition; resale price maintenance; social welfare;

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    1. Mathewson, G F & Winter, R A, 1983. "The Incentives for Resale Price Maintenance under Imperfect Information," Economic Inquiry, Western Economic Association International, vol. 21(3), pages 337-48, July.
    2. Mueller, Willard F & Geithman, Frederick E, 1991. "An Empirical Test of the Free Rider and Market Power Hypotheses," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 301-08, May.
    3. Howard P. Marvel & Raymond Deneckere & James Peck, 1995. "Demand Uncertainty and Price Maintainance: Markdowns as Destructive Competition," Working Papers 018, Ohio State University, Department of Economics.
    4. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    5. Butz, David A, 1997. "Vertical Price Controls with Uncertain Demand," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 433-59, October.
    6. Bittlingmayer, George, 1983. "A Model of Vertical Restriction and Equilibrium in Retailing," The Journal of Business, University of Chicago Press, vol. 56(4), pages 477-96, October.
    7. repec:att:wimass:9507 is not listed on IDEAS
    8. Winter, Ralph A, 1993. "Vertical Control and Price versus Nonprice Competition," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 61-76, February.
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