Brand-specificity of pre-sale services and inter-brand competition with resale price maintenance

Abstract

We analyze the competitive effects of resale price maintenance (RPM) in circumstances in which multiple manufacturers use RPM and distributors have incentives to free-ride on other distributors’ pre-sale services, which can be specific to a manufacturer's brand to some extent. In the antitrust literature and practices, RPM solving the free-rider problem is perceived mostly as pro-competitive, while multiple manufacturers’ RPM is perceived as anti-competitive based on their collusive incentives. In our circumstances, distributors’ services may differentiate manufacturers’ brands ex post, as is desired by manufacturers. Thus, despite solving the free-rider problem, multiple manufacturers’ RPM may harm consumers by softening inter-brand price competition.