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Flawed Economic Models have Misled RPM Policy in the US, Canada and the EU

Author

Listed:
  • Tarcisio da Graca

    () (Université du Québec (Outaouais))

  • Robert Masson

    () (Cornell University)

Abstract

We show that some influential literature supporting the RPM efficiency view is flawed when it relies on the presale service justification for RPM. In particular we consider presale services that do not modify in use value of a good, what we term sterile services. We debunk what we call the Bork proposition, using Bork¹s own assumptions except one. Specifically Bork does not consider the fact that value in use may differ from prepurchase perceived value in use. We apply the value-in-use standard which exposes the loss in consumer surplus in Bork¹s model and reveals that even Bork¹s dissenters significantly underestimate their calculated losses to inframarginal consumers When consumer surplus is the antitrust/competition policy standard, our results suggest that a rule of reason regime in which competition/antitrust authorities or consumer protection agencies bear the burden of proof is inferior to a per se regime.

Suggested Citation

  • Tarcisio da Graca & Robert Masson, 2013. "Flawed Economic Models have Misled RPM Policy in the US, Canada and the EU," RePAd Working Paper Series UQO-DSA-wp042013, Département des sciences administratives, UQO.
  • Handle: RePEc:pqs:wpaper:042013
    as

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    File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/RePAD042013.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Patrick Rey & Thibaud Vergé, 2010. "Resale Price Maintenance And Interlocking Relationships," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 928-961, December.
    2. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    3. Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-297, October.
    4. Raymond Deneckere & Howard P. Marvel & James Peck, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 885-913.
    5. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
    6. John Asker & Heski Bar-Isaac, 2010. "Exclusionary Minimum Resale Price Maintenance," NBER Working Papers 16564, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Resale Price Maintenance; Welfare Effects; Antitrust.;

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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