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Resale Price Maintenance under Asymmetric Information

We study Resale Price Maintenance (RPM) in a successive monopolies framework with adverse selection and moral hazard. The analysis compares both the private and the wel- fare properties of vertical contracts based on retail price restrictions with those derived under quantity .xing arrangements (QF). With information asymmetries, both types of vertical contracts entail a double marginalization driven by the presence of information rents, distributed to a privately informed downstream retailer, which forces the upstream producer to sell above its marginal costs. When .rms behave non-cooperatively, the up- stream producer always prefers RPM to QF, and the impact of RPM on consumers. surplus is ambiguous. With joint-pro.ts maximizing contracts, instead, whenever RPM maximizes constrained joint-pro.ts it also raises consumers.surplus, thereby producing a Pareto improvement relative to QF contracts.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 107.

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Date of creation: 01 Oct 2003
Date of revision: 01 Apr 2007
Publication status: Published in International Journal of Industrial Organization, 2007, vol. 25, pages 315-339
Handle: RePEc:sef:csefwp:107
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  1. Benjamin F. Blair & Tracy R. Lewis, 1994. "Optimal Retail Contracts with Asymmetric Information and Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 284-296, Summer.
  2. Maskin, Eric & Riley, John, 1985. "Input versus output incentive schemes," Journal of Public Economics, Elsevier, vol. 28(1), pages 1-23, October.
  3. Gal-Or, Esther, 1991. "Vertical Restraints with Incomplete Information," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 503-16, September.
  4. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
  5. Andrea Shepard, 1993. "Contractual Form, Retail Price, and Asset Characteristics in Gasoline Retailing," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 58-77, Spring.
  6. Jullien, Bruno & Rey, Patrick, 2000. "Resale Price Maintenance and Collusion," CEPR Discussion Papers 2553, C.E.P.R. Discussion Papers.
  7. Martimort, David & Piccolo, Salvatore, 2007. "Resale price maintenance under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 315-339, April.
  8. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  9. Khalil, F. & Lawarree, J., 1993. "Input Versus Output Monitoring: Who Is the Residual Claimant?," Discussion Papers in Economics at the University of Washington 93-01, Department of Economics at the University of Washington.
  10. William P. Rogerson, 1987. "On the Optimality of Menus of Linear Contracts," Discussion Papers 714, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
  12. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
  13. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June.
  14. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  15. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  16. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
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