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Resale Price Maintenance and Collusion

  • Jullien, Bruno
  • Rey, Patrick

The paper revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude. We analyse the scope for collusion with and without resale price maintenance (RPM) when retailers observe local shocks on demand or retail costs. In the absence of RPM, retail prices react to retailers' information and deviations from collusive behaviour are thus difficult to detect. By eliminating retail price flexibility, RPM facilitates the detection of deviations but reduces profits and increases the short-run gains from a deviation. Overall, RPM can facilitate collusion and it reduces total welfare whenever firms choose to adopt it.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 102.

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Date of creation: 2000
Date of revision:
Publication status: Published in The RAND Journal of Economics, vol.�38, n°4, Winter 2007, p.�983-1001.
Handle: RePEc:ide:wpaper:681
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  1. Slade, Margaret E, 1998. "Beer and the Tie: Did Divestiture of Brewer-Owned Public Houses Lead to Higher Beer Prices?," Economic Journal, Royal Economic Society, vol. 108(448), pages 565-602, May.
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