Premium
The “Services” Explanation for Resale Price Maintenance: Deleterious Results Missed in the Economics Literature and in Legal Decisions
Author(s) -
da Graça Tarcisio B.,
Masson Robert T.
Publication year - 2012
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2011.160
Subject(s) - resale price maintenance , collusion , dissenting opinion , value (mathematics) , economic surplus , economics , microeconomics , product (mathematics) , marginal value , consumer welfare , welfare , supreme court , business , law , incentive , market economy , geometry , mathematics , machine learning , political science , computer science
Policy discussions and a U.S. Supreme Court decision interpret retailer services induced by retail price maintenance (RPM) as enhancing consumer surplus (CS) and welfare enhancing, marginalizing dissenting opinions that use similar models but with different parameters. However, if presales services stimulate demand by providing information about a product's value, they need not raise postsale value in use. Inframarginal consumers' presales perceived value may increase, but their postsale value may be unchanged, so their supposed CS gains are ephemeral, and their actual surplus falls proportional to price increase. We show that, even adding in gains to marginal consumers, effects on CS are far more negative than conceived of in this literature. Consequently, in a rule‐of‐reason antitrust environment, if RPM is challenged without alleging collusion or exclusion, presales demand‐inducing information provision is a flimsy defense if CS is the standard and not always convincing if total surplus is the standard.