Resale price maintenance contracts with retailer sales effort: Effect of flexibility and competition (original) (raw)
2006, Naval Research Logistics
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The Empirical Effects of Minimum Resale Price Maintenance
This study is the first to estimate the empirical effects of minimum resale price maintenance (RPM) across a broad variety of products. We analyze conflicting theories using an exogenous state-level law change resulting from the 2007 Leegin Supreme Court decision. In states where RPM contracts are treated under the more relaxed rule-of-reason standard, prices increased. We estimate the welfare impact and find that, in aggregate, consumers are worse off in the rule-of-reason states. Though welfare decreased and prices increased, we find little support for the broad application of any particular theory. For much of the past century, minimum resale price maintenance (RPM) contracts have been illegal in the United States. For that reason, empirical analysis on the effect of vertical price agreements is sparse. As noted in the literature, " the absence of significant empirical evidence is surely the greatest remaining impediment to a comprehensive analysis of RPM " (Marvel and McCafferty, 1985). This paper advances the analysis of RPM by providing the first estimates of empirical effects across a broad range of goods and by conducting tests of multiple candidate theories. There is disagreement in the existing literature over the effects of minimum RPM on consumer welfare. The welfare-reducing view contends that vertical Syverson for their helpful comments and the Kilts-Nielsen Data Center at The University of Chicago Booth School of Business for providing the data. Information on availability and access to the data are available at http://research.chicagobooth/nielsen/.
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