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Oligopoly Price Discrimination and Resale Price Maintenance

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  • Yongmin Chen

Abstract

Oligopoly price discrimination in the retail market prevents a manufacturer from inducing optimal retail margins through any wholesale price. This motivates the manufacturer to impose resale price maintenance. In a model of third-degree price discrimination by rival retailers, a retail price ceiling (or floor) enables the manufacturer to restore the first best. Imposing a fixed retail price is generally not optimal because the manufacturer wants to eliminate price discrimination based on consumers' abilities to switch retailers, not based on consumers' valuations. Under resale price maintenance, welfare may either increase or decrease, and it may increase even when total output is reduced.

Suggested Citation

  • Yongmin Chen, 1999. "Oligopoly Price Discrimination and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 441-455, Autumn.
  • Handle: RePEc:rje:randje:v:30:y:1999:i:autumn:p:441-455
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    Cited by:

    1. Rajnish Kumar & Levent Kutlu, 2016. "Price Discrimination in Quantity Setting Oligopoly," Manchester School, University of Manchester, vol. 84(4), pages 482-505, July.
    2. Bakó, Barna & Kálecz-Simon, András, 2012. "Vertikális korlátozások - növelik vagy csökkentik a jólétet?. Érvek az irodalomból
      [Vertical constraints - do they increase or reduce welfare?. Arguments in the literature]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1138-1159.
    3. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.
    4. repec:oup:jcomle:v:1:y:2005:i:4:p:747-770. is not listed on IDEAS
    5. Aguirre Pérez, Iñaki, 2011. "Multimarket Competition and Welfare Effects of Price discrimination," IKERLANAK 2011-55, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    6. Matthew Burgess & Lewis Evans, 2005. "Parallel Importation And Service Quality: An Empirical Investigation Of Competition Between Dvds And Cinemas In New Zealand," Journal of Competition Law and Economics, Oxford University Press, vol. 1(4), pages 747-770.
    7. Asker, John & Bar-Isaac, Heski, 2016. "Vertical Information Restraints: Pro- and Anti-Competitive Impacts of Minimum Advertised Price Restrictions," CEPR Discussion Papers 11579, C.E.P.R. Discussion Papers.
    8. 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.
    9. repec:eee:indorg:v:57:y:2018:i:c:p:147-174 is not listed on IDEAS
    10. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    11. Reisinger, Markus & Schnitzer, Monika, 2008. "A Model of Vertical Oligopolistic Competition," Discussion Papers in Economics 3189, University of Munich, Department of Economics.
    12. David Andrés Camargo Mayorga & Johan Ricardo Páez Castillo & Ángel David Roncancio García, 2010. "Consideraciones teóricas y empíricas acerca del Resale Price Maintenance," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA, December.
    13. Se Hoon Bang & Jaesoo Kim & Young-Ro Yoon, 2014. "Reverse Price Discrimination with Bayesian Buyers," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 286-308, June.
    14. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    15. 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.

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