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ON THE PROFITABILITY OF RESALE PRICE MAINTENANCE WHEN DEMAND IS UNCERTAIN
Author(s) -
Wang Hao
Publication year - 2019
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12183
Subject(s) - profitability index , rationing , microeconomics , competition (biology) , economics , resale price maintenance , consumer demand , consumer welfare , business , industrial organization , welfare , commerce , incentive , market economy , finance , ecology , health care , biology , economic growth
A previous study finds that in a market where a manufacturer faces uncertain demand and sells to consumers through competitive retailers, the manufacture wishes to support adequate retail inventories by imposing resale price maintenance (RPM). I show that if retail inventories are allocated to consumers through first‐come‐first‐served rule rather than efficient rationing rule in the game with unconstrained retail competition, imposing RPM may not be profitable. It may not encourage more retail inventories either. RPM may also lower consumer surpluses and social welfare. This study casts some doubt on the demand uncertainty theory that supports RPM.