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Exclusionary Minimum Resale Price Maintenance

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  • John Asker
  • Heski Bar-Isaac

Abstract

An upstream manufacturer can use minimum retail price maintenance (RPM) to exclude potential competitors. RPM lets the incumbent manufacturer transfer profits to retailers. If entry is accommodated, upstream competition leads to fierce down- stream competition and the breakdown of RPM. Hence, via RPM, retailers internalize the effect of accommodating entry on the incumbent's profits. Retailers may prefer not to accommodate entry; and, if entry requires downstream accommodation, entry can be deterred. We investigate when an incumbent would prefer to exclude, rather than collude with, the entrant and the effect of a retailer cartel. We also consider the effect of imperfect competition. Empirical and policy implications are discussed.
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Suggested Citation

  • John Asker & Heski Bar-Isaac, 2011. "Exclusionary Minimum Resale Price Maintenance," Working Papers 11-22, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:11-22
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    File URL: http://pages.stern.nyu.edu/~jasker/RPMFinal.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. John Asker & Heski Bar-Isaac, 2012. "Vertical Practices Facilitating Exclusion," Working Papers 12-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Bakó, Barna & Kálecz-Simon, András, 2012. "Vertikális korlátozások - növelik vagy csökkentik a jólétet?. Érvek az irodalomból [Vertical constraints - do they increase or reduce welfare?. Arguments in the literature]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1138-1159.
    4. Tarcisio B. da Graça & Robert T. Masson, 2012. "The “Services” Explanation for Resale Price Maintenance: Deleterious Results Missed in the Economics Literature and in Legal Decisions," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 450-463, October.
    5. Bang, Se Hoon & Jin, Yangsoo, 2015. "Brand-specificity of pre-sale services and inter-brand competition with resale price maintenance," International Review of Law and Economics, Elsevier, vol. 43(C), pages 1-9.
    6. Matthias Hunold & Johannes Muthers, 2011. "Resale Price Maintenance: Hurting Competitors, Consumers and Yourself," Working Papers 100, Bavarian Graduate Program in Economics (BGPE).
    7. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-686, February.
    8. Juan Esteban Carranza & Robert Clark & Jean-François Houde, 2015. "Price Controls and Market Structure: Evidence from Gasoline Retail Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 152-198, March.
    9. Lawrence J. White, 2013. "Monopoly and Dominant Firms: Antitrust Economics and Policy Approaches," Working Papers 13-13, New York University, Leonard N. Stern School of Business, Department of Economics.

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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