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Resale Price Maintenance and Horizontal Cartel

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  • Patrick Rey
  • Thibaud Verge

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Abstract

Whereas non-price restrictions such as exclusive territories are often tolerated while Resale Price Maintenance (RPM) is rather unanimously forbidden, the economic analysis shows so far that both types of restraints have positive and negative effects on welfare, in such a way that the balance is not clearly in favour of non-price restrictions. An often expressed idea to justify the courts' decisions against RPM is that it can limit both inter- and intra-brand competition. This paper analyses this argument in a context where manufacturers and retailers have interlocking relationships. It is shown that even as part of purely bilateral vertical contracts, RPM indeed limits the exercise of both inter- an intra-brand competition and can even generate industry-wide monopoly pricing. The final impact on prices depends on the substituability between retailers and between manufacturers, and on the extent of potential competition at the retail level.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp47.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 02/047.

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Length: 30 pages
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:bri:cmpowp:02/047

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Keywords: resale price maintenance; collusion; successive duopoly;

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