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Retailer Heterogeneity, Intra-Brand Competition and Social Welfare


  • Hao Wang



This paper considers a model where a manufacturer sells its product to consumers through competitive retailers who are heterogeneous in marginal distribution costs and geographic locations. We study the welfare implications of resale price maintenance (RPM), which eliminates the intra-brand competition. We show that with RPM, the manufacturer can make more profit at the cost of the consumers. RPM helps the high-cost retailers to stay competitive in the market, and therefore increases the total distribution cost of the society. We suggest that antitrust authorities should be concerned when intra-brand competition is lessened. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Hao Wang, 2005. "Retailer Heterogeneity, Intra-Brand Competition and Social Welfare," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 87-97, June.
  • Handle: RePEc:kap:jincot:v:5:y:2005:i:2:p:87-97 DOI: 10.1007/s10842-005-3720-2

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    References listed on IDEAS

    1. Butz, David A, 1997. "Vertical Price Controls with Uncertain Demand," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 433-459, October.
    2. 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.
    3. Bittlingmayer, George, 1983. "A Model of Vertical Restriction and Equilibrium in Retailing," The Journal of Business, University of Chicago Press, vol. 56(4), pages 477-496, October.
    4. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-641, September.
    5. Mathewson, G F & Winter, R A, 1983. "The Incentives for Resale Price Maintenance under Imperfect Information," Economic Inquiry, Western Economic Association International, vol. 21(3), pages 337-348, July.
    6. Ralph A. Winter, 1993. "Vertical Control and Price Versus Nonprice Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 61-76.
    7. Mueller, Willard F & Geithman, Frederick E, 1991. "An Empirical Test of the Free Rider and Market Power Hypotheses," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 301-308, May.
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