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Resale price maintenance under asymmetric information

  • Martimort, David
  • Piccolo, Salvatore

We study Resale Price Maintenance (RPM) in a successive monopolies framework with adverse selection and moral hazard. The analysis compares both the private and the wel- fare properties of vertical contracts based on retail price restrictions with those derived under quantity .xing arrangements (QF). With information asymmetries, both types of vertical contracts entail a double marginalization driven by the presence of information rents, distributed to a privately informed downstream retailer, which forces the upstream producer to sell above its marginal costs. When .rms behave non-cooperatively, the up- stream producer always prefers RPM to QF, and the impact of RPM on consumers. surplus is ambiguous. With joint-pro.ts maximizing contracts, instead, whenever RPM maximizes constrained joint-pro.ts it also raises consumers.surplus, thereby producing a Pareto improvement relative to QF contracts.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 25 (2007)
Issue (Month): 2 (April)
Pages: 315-339

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Handle: RePEc:eee:indorg:v:25:y:2007:i:2:p:315-339
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