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How Fair Is Fair Trade?

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  • HOWARD P. MARVEL

Abstract

Fair trade, also known as resale price maintenance (RPM), is a per se violation of the antitrust laws. Economic theory suggests that RPM may enhance the efficiency of distribution, but opposition to the practice remains strong. This opposition may stem from concern that RPM raises retail prices and penalizes well‐informed customers. This paper summarizes research on the motivation for RPM as well as its impact on prices. The analysis suggests that comparing prices in RPM jurisdictions with those in free‐trade areas provides little guidance on likely effects if RPM were permitted everywhere. An analysis of RPM's impact on prices is developed, and then this analysis is employed to assess RPM's welfare effects. Results of the welfare analysis are shown to depend crucially on which form of cost function is assumed for services provided by dealers.

Suggested Citation

  • Howard P. Marvel, 1985. "How Fair Is Fair Trade?," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 23-35, March.
    • Handle: RePEc:bla:coecpo:v:3:y:1985:i:3:p:23-35
    DOI: 10.1111/j.1465-7287.1985.tb00805.x
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    References listed on IDEAS

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    1. 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.
    2. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    3. L. G. Telser, 1968. "Some Aspects of the Economics of Advertising," The Journal of Business, University of Chicago Press, vol. 41, pages 166-166.
    4. Thomas R. Overstreet Jr. & Alan A. Fisher, 1985. "Resale Price Maintenance And Distributional Efficiency: Some Lessons From The Past," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 43-58, March.
    5. Marvel, Howard P & McCafferty, Stephen, 1985. "The Welfare Effects of Resale Price Maintenance," Journal of Law and Economics, University of Chicago Press, vol. 28(2), pages 363-379, May.
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    Cited by:

    1. Benjamin S. Sharp, 1985. "Comments On Marvel: How Fair Is Fair Trade?," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 37-42, March.
    2. Terry Calvani & James Langenfeld, 1985. "An Overview Of The Current Debate On Resale Price Maintenance," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 1-8, March.
    3. William S. Comanor & John B. Kirkwood, 1985. "Resale Price Maintenance And Antitrust Policy," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 9-16, March.
    4. Lawrence J. White, 1985. "Resale Price Maintenance And The Problem Of Marginal And Inframarginal Customers," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 17-21, March.

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