DP2553 Resale Price Maintenance and Collusion

Author(s): Bruno Jullien, Patrick Rey
Publication Date: September 2000
Keyword(s): Antitrust, Collusion, Resale Price Maintenance, Vertical Restraints
JEL(s): K21, L13, L41, L42
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2553

The paper revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude. We analyse 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 behaviour are thus difficult to detect. By eliminating retail price flexibility, RPM facilitates the detection of deviations but reduces profits and increases the short-run gains from a deviation. Overall, RPM can facilitate collusion and it reduces total welfare whenever firms choose to adopt it.