Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73445
Authors: 
Hunold, Matthias
Muthers, Johannes
Year of Publication: 
2011
Series/Report no.: 
BGPE Discussion Paper 100
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.
Subjects: 
biased sales advice
common agency
manufacturer dilemma
matching
RPM
vertical restraints
JEL: 
D83
L42
Document Type: 
Working Paper

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