Three Cases in Search of a Theory: Resale Price Maintenance in the UK

Abstract:     
Vertical agreements in general, and resale price maintenance (RPM) in particular, can be used both in a pro-competitive way by improving efficiencies and facilitating entry into new markets, and in an anticompetitive way by blocking new entrants, restoring monopoly profits, dampening competition or facilitating collusion. One element stands out when assessing this crucial trade-off in determining the likely impact on competition, and finally on consumers, of vertical restraints in general: the importance of the market context. The presence of effective upstream competition helps the procompetitive and efficiency effects of vertical restraints. On the other hand, anticompetitive effects are more likely when upstream competition is weak and there are barriers to entry at either the producer or distributor level. For collusive anticompetitive effects to be a threat it is necessary that suppliers or retailers form a tight oligopoly such that RPM is applied by all or many of them. The likely influence of the market context on the welfare effects of RPM is better assessed by matching a careful analysis of the empirical evidence obtained from case studies and investigations conducted by national competition authorities (NCAs), with the analytical results derived from stylised economic models. This paper provides an assessment of three RPM cases in the UK, following a roadmap provided by recent theoretical insights on plausible anticompetitive harm due to RPM in specific market contexts.

Keywords: RPM,Vertical Restraints, Competition Policy

JEL Classification: K21, D04

Accepted Paper Series