Resale Price Maintenance and Manufacturer Competition for Retail Services

33 Pages Posted: 20 Apr 2012

See all articles by Matthias Hunold

Matthias Hunold

ZEW – Leibniz Centre for European Economic Research

Johannes Muthers

University of Würzburg - Institute of Economics and Social Sciences

Date Written: April 20, 2012

Abstract

We investigate the incentives of manufacturers to use resale price maintenance (RPM) when selling products through common retailers. In our model retailers provide product specific pre-sales services. If the competitive retail margins are low, each manufacturer fixes a minimum price to induce favorable retail services. With symmetric manufacturers, products are equally profitable in equilibrium and no product is favored as without RPM, but retail prices are higher. We show that minimum RPM can create a prisoner’s dilemma for manufacturers without increasing, and possibly even decreasing the overall service quality. This challenges the service argument as an efficiency defense for RPM.

Keywords: biased sales advice, common agency, manufacturer dilemma, matching, retail service, RPM, vertical restraints

JEL Classification: D83, L42

Suggested Citation

Hunold, Matthias and Muthers, Johannes, Resale Price Maintenance and Manufacturer Competition for Retail Services (April 20, 2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-028, Available at SSRN: https://ssrn.com/abstract=2043020 or http://dx.doi.org/10.2139/ssrn.2043020

Matthias Hunold (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

Universitätsstr. 1
Düsseldorf, 40225
Germany

Johannes Muthers

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
Wuerzburg, D-97070
Germany

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