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Does the Service Argument Justify Resale Price Maintenance?

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  • Norbert Schulz

Abstract

The paper analyzes the welfare effects of resale price maintenance (RPM) when the level of service of one retailer generates negative rather than positive spillovers for other retailers. A simple linear demand system is used and is linked to preferences of consumers via a discrete-choice approach. Under this specification, and in contrast to the literature dealing with this case, RPM may increase service (and price) or decrease service (and price). More interestingly, whether service increases or decreases due to RPM provides no clue to whether welfare increases or decreases due to RPM. Either case may arise independently of the effect of RPM on service.

Suggested Citation

  • Norbert Schulz, 2007. "Does the Service Argument Justify Resale Price Maintenance?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 236-255, June.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200706)163:2_236:dtsajr_2.0.tx_2-p
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    References listed on IDEAS

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    Cited by:

    1. Lau, Amy Hing Ling & Lau, Hon-Shiang & Wang, Jian-Cai, 2010. "Usefulness of resale price maintenance under different levels of sales-effort cost and system-parameter uncertainties," European Journal of Operational Research, Elsevier, vol. 203(2), pages 513-525, June.
    2. Kenji, Matsui, 2011. "Resale price maintenance for supply chains distributing products with demand uncertainty," International Journal of Production Economics, Elsevier, vol. 134(2), pages 375-387, December.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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