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Flawed Economic Models have Misled RPM Policy in the US, Canada and the EU

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  • Tarcisio da Graca

    ()
    (Université du Québec (Outaouais))

  • Robert Masson

    ()
    (Cornell University)

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    Abstract

    We show that some influential literature supporting the RPM efficiency view is flawed when it relies on the presale service justification for RPM. In particular we consider presale services that do not modify in use value of a good, what we term sterile services. We debunk what we call the Bork proposition, using Bork¹s own assumptions except one. Specifically Bork does not consider the fact that value in use may differ from prepurchase perceived value in use. We apply the value-in-use standard which exposes the loss in consumer surplus in Bork¹s model and reveals that even Bork¹s dissenters significantly underestimate their calculated losses to inframarginal consumers When consumer surplus is the antitrust/competition policy standard, our results suggest that a rule of reason regime in which competition/antitrust authorities or consumer protection agencies bear the burden of proof is inferior to a per se regime.

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    File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/RePAD042013.pdf
    File Function: First version, 2013
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    Bibliographic Info

    Paper provided by Département des sciences administratives, UQO in its series RePAd Working Paper Series with number UQO-DSA-wp042013.

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    Length: 52 pages
    Date of creation: 01 Jul 2013
    Date of revision:
    Handle: RePEc:pqs:wpaper:042013

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    Keywords: Resale Price Maintenance; Welfare Effects; Antitrust.;

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    1. Patrick REY & Thibaud VERGE, 2009. "Resale Price Maintenance and Interlocking Relationships," Working Papers 2009-11, Centre de Recherche en Economie et Statistique.
    2. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    3. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 885-913, August.
    4. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
    5. John Asker & Heski Bar-Isaac, 2010. "Exclusionary Minimum Resale Price Maintenance," NBER Working Papers 16564, National Bureau of Economic Research, Inc.
    6. Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-97, October.
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