Resale Price Maintenance in a Successive Monopoly Model

42 Pages Posted: 18 Feb 2021 Last revised: 19 May 2022

See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

University of Münster

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: May 1, 2022

Abstract

We provide a novel explanation for why manufacturers want to enforce a minimum resale price (min RPM) on retailers. A manufacturer sells her good via a multi-product retailer to final consumers by charging a linear wholesale price. The manufacturer then maximizes her profit through min RPM whenever the Edgeworth taxation paradox (ETP) occurs, that is, whenever the retailer could increase profits by decreasing all prices. Unlike many other justifications for RPM, our ETP-driven explanation for min RPM critically relies on interbrand competition, and it is - at least in the case of linear demand functions - always to the detriment of consumers.

Keywords: Resale Price Maintenance, Vertical Restraints, Retailing

JEL Classification: L12, L41, D42, K21

Suggested Citation

Dertwinkel-Kalt, Markus and Wey, Christian, Resale Price Maintenance in a Successive Monopoly Model (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=3764435 or http://dx.doi.org/10.2139/ssrn.3764435

Markus Dertwinkel-Kalt (Contact Author)

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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