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The “Services” Explanation for Resale Price Maintenance: Deleterious Results Missed in the Economics Literature and in Legal Decisions

Listed author(s):
  • Tarcisio B. da Graça

    (University of Ottawa and Canadian Competition Bureau, Competition Bureau, Economic Policy and Enforcement Branch, 50 Victoria Street, Gatineau, Quebec K1A 0C9, Canada)

  • Robert T. Masson


    (Cornell University, Department of Economics, 440 Uris Hall, Ithaca, NY 14853, USA; corresponding author)

Registered author(s):

    Policy discussions and a U.S. Supreme Court decision interpret retailer services induced by retail price maintenance (RPM) as enhancing consumer surplus (CS) and welfare enhancing, marginalizing dissenting opinions that use similar models but with different parameters. However, if presales services stimulate demand by providing information about a product's value, they need not raise postsale value in use. Inframarginal consumers' presales perceived value may increase, but their postsale value may be unchanged, so their supposed CS gains are ephemeral, and their actual surplus falls proportional to price increase. We show that, even adding in gains to marginal consumers, effects on CS are far more negative than conceived of in this literature. Consequently, in a rule-of-reason antitrust environment, if RPM is challenged without alleging collusion or exclusion, presales demand-inducing information provision is a flimsy defense if CS is the standard and not always convincing if total surplus is the standard.

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    Article provided by Southern Economic Association in its journal Southern Economic Journal.

    Volume (Year): 79 (2012)
    Issue (Month): 2 (October)
    Pages: 450-463

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    Handle: RePEc:sej:ancoec:v:79:2:y:2012:p:450-463
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