The authors thank two anonymous referees and the editor for valuable and detailed comments, as well as seminar participants at MIT, Tel Aviv University, University of Montréal, and the European Symposium in Economic Theory.
Resale price maintenance and collusion
Article first published online: 9 OCT 2008
The RAND Journal of Economics
Volume 38, Issue 4, pages 983–1001, Winter 2007
How to Cite
Jullien, B. and Rey, P. (2007), Resale price maintenance and collusion. The RAND Journal of Economics, 38: 983–1001. doi: 10.1111/j.0741-6261.2007.00122.x
- Issue published online: 9 OCT 2008
- Article first published online: 9 OCT 2008
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.