Template-Type: ReDIF-Paper 1.0

Author-Name: Matthias Hunold
Author-X-Name-First: Matthias
Author-X-Name-Last: Hunold

Author-Name: Johannes Muthers
Author-X-Name-First: Johannes
Author-X-Name-Last: Muthers

Title: Resale Price Maintenance: Hurting Competitors, Consumers and Yourself

	
Abstract: Improving retailers’ incentives for service is a prominent efficiency defense for resale
price maintenance (RPM). We investigate the incentives of symmetric manufacturers
to use RPM when selling products through common retailers who provide services such
as pre-sale advice. We show that the possibility to use minimum RPM can create a
dilemma for manufacturers when retailers influence consumer choice through service. If
price competition among retailers is strong, a manufacturer benefits from introducing
minimum RPM as it incentivizes retailers to favor the sales of her product. However,
other manufacturers follow into RPM. In the symmetric equilibrium, service is
unbiased, but retail margins and consumer prices are higher than without RPM. In
turn, manufacturers’ profits and social welfare are lower. This challenges the service
argument as an efficiency defense for RPM.
Length:  38 pages
Creation-Date:  2011-05
File-URL: http://www.bgpe.de/texte/DP/100_HunoldMuthers.pdf
File-Format: Application/pdf
File-Function: First version, 2011
Number: 100
Classification-JEL: D83, L42
Keywords: biased sales advice, common agency, manufacturer dilemma, matching, RPM, vertical restraints
Handle: RePEc:bav:wpaper:100_HunoldMuthers