Oligopoly Price Discrimination and Resale Price Maintenance
Volume: Volume 30, No. 3
Issue: Autumn 1999
Pages: pp. 441-455
Authors: Yongmin Chen
Title: Oligopoly Price Discrimination and Resale Price Maintenance
Abstract: Oligopoly price discrimination in the retail market prevents a manufacturer from inducing optimal retail margins through any wholesale price. This motivates the manufacturer to impose resale price maintenance. In a model of third-degree price discrimination by rival retailers, a retail price ceiling (or floor) enables the manufacturer to restore the first best. Imposing a fixed retail price is generally not optimal because the manufacturer wants to eliminate price discrimination based on consumers' abilities to switch retailers, not based on consumers' valuations. Under resale price maintenance, welfare may either increase or decrease, and it may increase even when total output is reduced.
JEL Classification
Market Structure, Firm Strategy, and Market Performance: Oligopoly and Other Imperfect Markets; monopolistic competition; contestable markets
(L130)
Vertical Restraints; Resale Price Maintenance; Quantity Discounts
(L420)
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
(D430)
Market Structure: Industrial Organization and Corporate Strategy
(6110)
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures
(0226)
Public Policy Towards Monopoly and Competition (6120)