Resale Price Maintenance and Informative Advertisement

23 Pages Posted: 18 Mar 2017 Last revised: 15 Aug 2018

See all articles by Gihwan Yi

Gihwan Yi

Korea Institute of Local Finance

Seung-Gyu Sim

Aoyama Gakuin University

Date Written: August 14, 2018

Abstract

This paper studies a monopolistic producer's resale price maintenance scheme when downstream retailers simultaneously put (informative) advertisement efforts and sell final products. It posits that each retailer's advertisement effort increases not only its own sales, but also the entire market size, because consumers, after observing an advertisement from one retailer, may purchase from another. We demonstrate that unless the advertisement cost is too elastic, the minimum resale price maintenance scheme is binding and welfare-enhancing. In contrast to existing literature, it supports the legal doctrine of "rule of reason" rather than "illegal per se" even under consumer surplus standard for competition policy.

Keywords: Advertisement, Retail Price Maintenance, Rule of Reason

JEL Classification: K21, L42, M37

Suggested Citation

Yi, Gihwan and Sim, Seung-Gyu, Resale Price Maintenance and Informative Advertisement (August 14, 2018). Available at SSRN: https://ssrn.com/abstract=2934356 or http://dx.doi.org/10.2139/ssrn.2934356

Gihwan Yi (Contact Author)

Korea Institute of Local Finance ( email )

16, Gangnam-daero 2 gil,
Seocho-gu
Seoul, 06788
Korea, Republic of (South Korea)

Seung-Gyu Sim

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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