Resale price maintenance and buyer power

Abstract

We analyze how the legalization of minimum or fixed RPM may affect consumer welfare and prices. We consider a setting in which a manufacturer distributes its brand through two competing retailers, who each is also selling a retailer owned brand. The contract terms are decided in pairwise negotiations between the manufacturer and each retailer. We find that if minimum RPM contracts are feasible, they will be adopted in equilibrium. Moreover, consumer welfare may be higher, and some or even all prices may be lower when firms adopt minimum RPM.