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Double Moral Hazard and Resale Price Maintenance

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  • Richard E. Romano

Abstract

Incentives for resale price maintenance (RPM) are studied in a wholesaler-retailer relationship in which both firms make a nonprice choice subject to moral hazard. The best attainable contract has vertical externalities in both nonprice choices and the choice of consumers' price if delegated to the retailer. RPM controls the latter externality but interacts with the other externalities as well. As a consequence, either minimum or maximum vertical price fixing can be optimal in spite of a successive-monopoly specification. Similar incentives exist for writing other variables into contract, such as the capital input of the retailer.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 25 (1994)
Issue (Month): 3 (Autumn)
Pages: 455-466

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Handle: RePEc:rje:randje:v:25:y:1994:i:autumn:p:455-466

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Cited by:
  1. Major, Iván, 2013. "When trust fades...: Can optimal mechanisms for policy decisions always be designed?," 24th European Regional ITS Conference, Florence 2013 88522, International Telecommunications Society (ITS).
  2. Robert Dur & Arjan Non & Hein Roelfsema, 2009. "Reciprocity and Incentive Pay in the Workplace," SOEPpapers on Multidisciplinary Panel Data Research 177, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Jay Pil Choi, 1999. "A Dynamic Analysis of Licensing: The Boomerang Effect and Grant-Back Clauses," CESifo Working Paper Series 188, CESifo Group Munich.
  4. Hempelmann, Bernd, 2006. "Optimal franchise contracts with private cost information," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 449-465, March.
  5. Keiichi Hori & Hiroshi Osano, 2013. "Managerial Incentives and the Role of Advisors in the Continuous-Time Agency Model," Review of Financial Studies, Society for Financial Studies, vol. 26(10), pages 2620-2647.
  6. Jung Choong-Young & Kim Jae-Cheol & Lee Sang-Ho, 2000. "An Incentive Contract With Asymmetric Information," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 99-110.
  7. David Andrés Camargo Mayorga & Johan Ricardo Páez Castillo & Ángel David Roncancio García, 2010. "Consideraciones teóricas y empíricas acerca del Resale Price Maintenance," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA.
  8. Robert Dur & Arjan Non & Hein Roelfsema, 2008. "Reciprocity and Incentive Pay in the Workplace," Tinbergen Institute Discussion Papers 08-080/1, Tinbergen Institute.
  9. Inderst, Roman & Pfeil, Sebastian, 2014. "An "Image Theory" of RPM," MPRA Paper 54139, University Library of Munich, Germany.
  10. Major, Iván, 2014. "Ha elfogy a bizalom... Kialakítható-e optimális mechanizmus kétoldalú aszimmetrikus információ esetén?
    [When confidence evaporates&. Does optimal mechanism design exist under doubly asymmet
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 148-165.

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