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Resale price maintenance and manufacturer competition for retail services
Author(s) -
Hunold Matthias,
Muthers Johannes
Publication year - 2017
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12165
Subject(s) - resale price maintenance , business , competition (biology) , market power , dilemma , product (mathematics) , incentive , industrial organization , service (business) , commerce , vertical restraints , argument (complex analysis) , marketing , microeconomics , economics , monopoly , ecology , philosophy , geometry , mathematics , epistemology , biology , biochemistry , chemistry
We investigate the incentives of two manufacturers with common retailers to use resale price maintenance (RPM). Retailers provide product‐specific services that increase demand and manufacturers use minimum RPM to compete for favorable retail services for their products. Minimum RPM increases consumer prices and can create a prisoner's dilemma for manufacturers without increasing, and possibly even reducing, the overall level of retail services. If manufacturer market power is asymmetric, minimum RPM may distort the allocation of services toward the high‐priced products of the manufacturer with more market power. These results challenge the service argument as an efficiency defense for minimum RPM.