Year: 2007
Type: article
Abstract: The article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude. We analyze the scope for collusion with and without resale price maintenance (RPM) when retailers observe local shocks on demand or retail costs. In the absence of RPM, retail prices react to retailers' information, and deviations from collusive behavior are thus difficult to detect. By eliminating retail price flexibility, RPM facilitates the detection of deviations but reduces profits and thus increases the short‐run gains from a deviation. Overall, RPM can facilitate collusion and reduce total welfare when firms adopt it.
Source: The RAND Journal of Economics
Authors: Bruno Jullien, Patrick Rey
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: bronze
Funder: Tel Aviv University
OpenAlex ID: W2103022367