Resale Price Maintenance: Hurting Competitors, Consumers and Yourself
Improving retailers’ incentives for service is a prominent efficiency defense for resale price maintenance (RPM). We investigate the incentives of symmetric manufacturers to use RPM when selling products through common retailers who provide services such as pre-sale advice. We show that the possibility to use minimum RPM can create a dilemma for manufacturers when retailers influence consumer choice through service. If price competition among retailers is strong, a manufacturer benefits from introducing minimum RPM as it incentivizes retailers to favor the sales of her product. However, other manufacturers follow into RPM. In the symmetric equilibrium, service is unbiased, but retail margins and consumer prices are higher than without RPM. In turn, manufacturers’ profits and social welfare are lower. This challenges the service argument as an efficiency defense for RPM.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
- White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
- Glenn Ellison & Alexander Wolitzky, 2009.
"A Search Cost Model of Obfuscation,"
NBER Working Papers
15237, National Bureau of Economic Research, Inc.
- Dziuda, Wioletta, 2011. "Strategic argumentation," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1362-1397, July.
- Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, 06.
- Jaffe Sonia & Weyl E. Glen, 2010. "Linear Demand Systems are Inconsistent with Discrete Choice," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-8, December.
When requesting a correction, please mention this item's handle: RePEc:bav:wpaper:100_hunoldmuthers. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rebecca Schrader)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.