The Competitive Effects of Resale Price Maintenance

Abstract

"The competitive effects of resale price maintenance (RPM) are theoretically diverse. RPM can cause allocation distortions or promote productive efficiencies in the distribution process. Moreover, extant cross-sectional empirical evidence is incapable of distinguishing among the potentially disparate effects of RPM. This paper conducts hypothesis tests of the alternative theories of RPM. The empirical framework relates estimates of the effects of RPM for a cross-section of observations to necessary conditions of the alternative models. This analysis indicates that RPM is used both to foster cartels and promote efficiencies in the distribution process. This result is consistent with the growing body of case study analysis that suggests that RPM is used for a variety of reasons. This result also questions the current per se illegal status of RPM in the antitrust laws. Evidence is also provided concerning the strategic interaction between manufacturers and dealers in the distribution process and the use of financial data in analyzing propositions in industrial organization."