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HOW FAIR IS FAIR TRADE?
Author(s) -
MARVEL HOWARD P.
Publication year - 1985
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1985.tb00805.x
Subject(s) - opposition (politics) , resale price maintenance , economics , welfare , fair trade , economic analysis , free trade , consumer welfare , international economics , microeconomics , international trade , law , market economy , agricultural economics , incentive , politics , political science
Fair trade, also known as resale price maintenance (RPM), is a per se violation of the antitrust laws. Economic theory suggests that RPM may enhance the efficiency of distribution, but opposition to the practice remains strong. This opposition may stem from concern that RPM raises retail prices and penalizes well‐informed customers. This paper summarizes research on the motivation for RPM as well as its impact on prices. The analysis suggests that comparing prices in RPM jurisdictions with those in free‐trade areas provides little guidance on likely effects if RPM were permitted everywhere. An analysis of RPM's impact on prices is developed, and then this analysis is employed to assess RPM's welfare effects. Results of the welfare analysis are shown to depend crucially on which form of cost function is assumed for services provided by dealers.