Minimum Resale Price Maintenance Research Articles

Resale Price Maintenance: What Future, What Past?

The paper deals with a comprehensive analysis of the evolution of vertical price restraints in the American, European and Indian market. Resale price maintenance refers to the efforts of a manufacturer to restrict the range of prices charged by a retailer of the manufacturer’s product. In this paper there will be an analysis of evolution of resale price maintenance in US with the inception of Sherman Act to Leegin Creative Leather case for maximum and minimum resale price maintenance. There will also be an analysis of evolution of US competition law from Per-se to Rule of reason with regard to incident of checking the anti-competitive market practice. A detailed analysis with respect to US, EU and Indian stand on competition law will be given in this research paper.

Competition Policy and Antitrust Law: Implications of Developments in Supply Chain Management

Building on research in supply chain management (SCM) that aids in the workings of society, the authors illustrate how SCM research can advance public policy and law. Using competition policy and antitrust law as an example, they consider how developments in SCM thought and practice augment economic understanding of vertical restraints involving minimum resale price maintenance (RPM). Developments affecting the organization of supply chains, firm‐level strategies for the management of retail distribution, and the interactions of supply chain participants are investigated. The findings advance knowledge of the primary procompetitive and anticompetitive theories of RPM found in competition policy and antitrust law. They also illustrate the potential of SCM to expand its reach and impact through studies that address the interplay of SCM and public policy and law.

Competition Policy and Antitrust Law: Implications of Developments in Supply Chain Management

Building on research in supply chain management (SCM) that aids in the workings of society, the authors illustrate how SCM research can advance public policy and law. Using competition policy and antitrust law as an example, they consider how developments in SCM thought and practice augment economic understanding of vertical restraints involving minimum resale price maintenance (RPM). Developments affecting the organization of supply chains; firm-level strategies for the management of retail distribution; and the interactions of supply chain participants are investigated. The findings advance knowledge of the primary procompetitive and anticompetitive theories of RPM found in competition policy and antitrust law. They also illustrate the potential of SCM to expand its reach and impact through studies that address the interplay of SCM and public policy and law.

Resale price maintenance and informative advertisement

ABSTRACT This paper studies a monopolistic producer’s resale price maintenance scheme when downstream retailers simultaneously put (informative) advertisement efforts and sell final products. It posits that each retailer’s advertisement effort increases not only its own sales, but also the entire market size, because consumers, after observing an advertisement from one retailer, may purchase from another. Unless the advertisement cost is too elastic, the minimum resale price maintenance scheme is binding and welfare-enhancing. Unlike the existing literature, it supports the legal doctrine of ‘rule of reason’ rather than ‘illegal per se’ even under consumer surplus standard for competition policy.

Resale Price Maintenance In Two‐Sided Markets

We consider competing two‐sided platforms selling directly to one side of the market, and through an agent to the other side. Platforms offer nonlinear tariffs, and can choose whether to contract with the same or different agents. We study the platforms’ incentives to impose resale price maintenance (RPM), and the effect on end customers. We find that, even if customers on both sides value each other's participation, platforms impose minimum RPM to raise prices on both sides simultaneously if platform competition is sufficiently strong. In a linear demand example, we find that overall welfare decreases with minimum prices and increases with maximum prices.

Resale Price Maintenance after Leegin: Behavioral, Evolutionary, and Institutional Insights for Advancing the Free Rider Thesis

Resale price maintenance (RPM) is a controversial channel pricing strategy that restricts the price at which a product can be resold. Contemporary understanding of RPM is derived mainly from economics, in which various perspectives have been applied to explain its use and effects. Motivated by a recent Supreme Court decision that altered prior restrictions on the use of minimum RPM, the authors propose three new perspectives and related theoretical propositions to enhance understanding of the primary procompetitive explanation of minimum RPM: the free rider thesis. The perspectives and propositions advance knowledge of RPM in ways that are important to academic scholarship, public policy, and managerial practice.

Resale Price Maintenance and Informative Advertisement

This paper studies a monopolistic producer's resale price maintenance scheme when downstream retailers simultaneously put (informative) advertisement efforts and sell final products. It posits that each retailer's advertisement effort increases not only its own sales, but also the entire market size, because consumers, after observing an advertisement from one retailer, may purchase from another. We demonstrate that unless the advertisement cost is too elastic, the minimum resale price maintenance scheme is binding and welfare-enhancing. In contrast to existing literature, it supports the legal doctrine of rule of reason rather than illegal per se even under consumer surplus standard for competition policy.

Resale price maintenance and manufacturer competition for retail services

We investigate the incentives of two manufacturers with common retailers to use resale price maintenance (RPM). Retailers provide product‐specific services that increase demand and manufacturers use minimum RPM to compete for favorable retail services for their products. Minimum RPM increases consumer prices and can create a prisoner's dilemma for manufacturers without increasing, and possibly even reducing, the overall level of retail services. If manufacturer market power is asymmetric, minimum RPM may distort the allocation of services toward the high‐priced products of the manufacturer with more market power. These results challenge the service argument as an efficiency defense for minimum RPM.

Resale Price Maintenance Without Services

A valid defense of the use of resale price maintenance (RPM) in court now must explain how the RPM induces more services (or other non-pricing dimensions customers value). Often, however, services either do not play a significant role, or their significance is subject to debate. This happened in the 2013 China's RPM case of Rainbow v. Johnson & Johnson (JJ J&J sold medical equipment to China's hospitals through various distributors but how significant was the distributors' services is debatable. We argue that J&J's RPM, even if it never elicited more services from its distributors, can be pro-competitive. We explain why the RPM did help J&J compete with other brands. We formalize our explanation in a model based on Winter (1993). The model has one upstream and two downstream firms. Unlike Winter (1993), the downstream firms only choose their prices but nothing else. Without services, there exist equilibria under which one downstream firm would under-price when the upstream firm offers a uniform wholesale price together with a lump-sum transfer. The upstream firm can curb such an under-pricing incentive by imposing a minimum RPM. In a numerical example, we show that the use of RPM without services can increase the welfare of both the whole supply chain and the consumers.

Minimum resale price maintenance in EU in the aftermath of the US Leegin decision

Leegin decision of the Supreme Court in 2007 affirmed that minimum RPM was to be evaluated under the rule of reason henceforth. Conversely, minimum RPM retains its position as a hard-core restraint in EU’s BER 2010 and the De Minimis Notice. The limited amount of case law reveal that in the absence of certain factors, such as significant market power of the parties, minimum RPM is unlikely to result in the detriment of consumers. Consequently, despite the retention of the maintenance of the single market as a significant aim in EU competition policy, minimum RPM practices are entitled to a more lenient approach, if the ultimate aim is to attain consumer welfare as stated by the Commission and through most judgments of the Court of Justice of the European Union.

Can two wrongs make a right? Reconsidering minimum resale price maintenance in the light of Allianz Hungária

Minimum resale price maintenance (RPM) agreements constitute hard-core vertical restraints and are treated as object restrictions in EU competition law. This article suggests that the time may have come where this approach is revised. After, first, discussing the economic theory behind RPM and the EU court's approach to object restrictions, it argues that the recent widening of the object analysis and the concomitant blurring of the object and effect categories may aid EU competition law to reconceptualise the approach to minimum RPM.

Hub-and-Spoke Conspiracies: The Vertical Expression of a Horizontal Desire?

An increasing number of horizontal agreements involve both competitors and their common suppliers (or retailers). As vertical agreements, indirect horizontal agreements can help reduce coordination failures, but they also have the capacity to dampen competition. The negative welfare effect of these agreements generally dominates when undertakings try and raise prices.Competition authorities generally distinguish alleged infringements between competitors active on the same relevant market (horizontal information exchanges or agreements) and those between undertakings and their suppliers or their customers (vertical agreements). A rising number of infringements mix elements of vertical and horizontal concerted practices, because they are horizontal in nature, but involve competitors and their suppliers (or retailers). They are referred to as hub-and-spoke exchanges (or A-B-C exchanges), where the spokes are active on the same product market and interact indirectly through the hub.From an economics perspective, there is not always an indisputable motive to classify hub-and-spoke agreements as mainly vertical with an horizontal effect, or mainly horizontal with the involvement of a supplier. In the European Union, the legal standards for horizontal and vertical infringements differ significantly. While the Commission’s Guidelines on Vertical Restraints characterize vertical minimum resale price maintenance agreements as hardcore restrictions, relying on the presumption that such agreements have an anticompetitive effect, the legal test for indirect horizontal concerted practices developed by the UK Courts is more demanding. It requires that competition authorities prove that the spokes and the hub transmit the information with an anticompetitive intent.

Hub-and-Spoke Conspiracies: the Vertical Expression of a Horizontal Desire?

An increasing number of horizontal agreements involve both competitors and their common suppliers (or retailers). As vertical agreements, indirect horizontal agreements can help reduce coordination failures, but they also have the capacity to dampen competition. The negative welfare effect of these agreements generally dominates when undertakings try and raise prices.Competition authorities generally distinguish alleged infringements between competitors active on the same relevant market (horizontal information exchanges or agreements) and those between undertakings and their suppliers or their customers (vertical agreements). A rising number of infringements mix elements of vertical and horizontal concerted practices, because they are horizontal in nature, but involve competitors and their suppliers (or retailers). They are referred to as hub-and-spoke exchanges (or A-B-C exchanges), where the spokes are active on the same product market and interact indirectly through the hub.From an economics perspective, there is not always an indisputable motive to classify hub-and-spoke agreements as mainly vertical with an horizontal effect, or mainly horizontal with the involvement of a supplier. In the European Union, the legal standards for horizontal and vertical infringements differ significantly. While the Commission’s Guidelines on Vertical Restraints characterize vertical minimum resale price maintenance agreements as hardcore restrictions, relying on the presumption that such agreements have an anticompetitive effect, the legal test for indirect horizontal concerted practices developed by the UK Courts is more demanding. It requires that competition authorities prove that the spokes and the hub transmit the information with an anticompetitive intent.

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.

Resale Price Maintenance and Manufacturer Competition for Retail Services

We investigate the incentives of manufacturers to use resale price maintenance (RPM) when selling products through common retailers. In our model retailers provide product specific pre-sales services. If the competitive retail margins are low, each manufacturer fixes a minimum price to induce favorable retail services. With symmetric manufacturers, products are equally profitable in equilibrium and no product is favored as without RPM, but retail prices are higher. We show that minimum RPM can create a prisoner’s dilemma for manufacturers without increasing, and possibly even decreasing the overall service quality. This challenges the service argument as an efficiency defense for RPM.

Resale price maintenance and free riding: insights from multi-channel research

Resale price maintenance (RPM), a form of vertical price fixing, involves agreements between marketers at different levels in a distribution system to establish the resale price at which sales of a product or service will occur. The Supreme Court’s decision in Leegin v. PSKS altered the legal standards applicable to minimum RPM and has resulted in an increase in the use of RPM by marketers. The lack of contemporary research on RPM and its effects on competition has led to initiatives and calls for research on this marketing practice. In the current paper, the authors synthesize findings from extant multi-channel research relevant to understanding the primary procompetitive justification for RPM– the so-called “free rider” thesis. The findings of this research augment antitrust understanding of RPM in important and novel ways.

The changed legality of resale price maintenance and pricing implications

From 1911 until 2007, minimum resale price maintenance agreements between manufacturers and resellers were illegal under federal antitrust law. This handicapped manufacturers which sought to exert control over how their products were priced and promoted through the distribution channel. In June 2007, the United States Supreme Court—via the Leegin case—ruled that bilateral minimum resale price maintenance agreements would no longer be automatically illegal. Rather, they would be legal if their net impact is pro-competitive, and illegal only if the net impact is anti-competitive. This ruling empowers manufacturers to use resale price maintenance to create value for their customers and consumers. However, not all stakeholders—including some state legal systems—have embraced the Leegin ruling, thereby creating uncertainty regarding its final impact. Despite this uncertainty, the opportunities created by Leegin are worth exploring and acting upon. Since the Leegin ruling 3 years ago, a new landscape for resale pricing maintenance has been evolving. We discuss this landscape and the considerations for using resale price maintenance within its ambit. For many manufacturers, the chance of benefitting from Leegin outweighs any potential risks.

The Roberts Court and the Limits of Antitrust

Antitrust is back in vogue at the U.S. Supreme Court. Whereas the Rehnquist Court decided few antitrust cases in its latter years (only one from 1993 to 1995, one each year from 1996 through 1999, and none from 2000 to 2003), the Roberts Court issued seven antitrust decisions in its first two years alone. Numerous commentators have characterized the Roberts Court’s antitrust decisions as radical departures that betray a pro-business, anti-consumer bias. While some of the decisions do represent significant changes from past practice (see, e.g., Leegin, which overruled the 1911 Dr. Miles rule of per se illegality for minimum resale price maintenance, and Twombly, which abrogated the infamous “no set of facts” pleading standard set forth in the 1957 Conley v. Gibson decision), the “pro-business/anti-consumer” characterization of the Roberts Court’s antitrust decisions is inaccurate. The characterization - caricature, really - fails to appreciate the fundamental limits of antitrust, a body of law that requires judges and juries to make fine distinctions between procompetitive and anticompetitive behaviors that frequently resemble each other. While false acquittals of anticompetitive conduct may harm consumers, so may false convictions of procompetitive actions. And efforts to eliminate errors in liability judgments are themselves costly. Optimal antitrust rules will therefore aim to minimize the sum of decision costs (the costs of reaching a liability decision) and expected error costs (the social losses from false convictions and false acquittals). Each of the Roberts Court’s antitrust decisions can be defended in light of this “decision-theoretic” approach, an approach calculated to maximize the effectiveness of the antitrust enterprise, to the ultimate benefit of consumers. This Article first describes the fundamental limits of antitrust and the decision-theoretic approach such limits inspire. It then analyzes the Roberts Court’s antitrust decisions, explaining how each coheres with the decision-theoretic model. Finally, it predicts how the Court will address three issues likely to come before it in the future: tying, loyalty rebates, and bundled discounts.

Porter's generic strategies as applied toward e‐tailers post‐Leegin

PurposeThe purpose of this paper is to evaluate the applicability of Porter's model of generic strategies as applied toward online retailers following the United States Supreme Court's decision in Leegin, which appears to signal greater tolerance for minimum vertical price maintenance agreements.Design/methodology/approachThe paper is based on a review of the literature and examines cases relating to minimum resale price maintenance agreements. Relying heavily on Porter's framework, it explores the strategic implications of the recent decision in Leegin for on‐line retailers, many of whom rely on a cost leadership competitive advantage.FindingsSince the increased likelihood that vertical minimum price maintenance agreements will be permitted, thereby lowering the barriers to entry, online retailers may be deterred from utilizing low costs to under‐price traditional retailers. As a result, the Leegin holding has devalued the feasibility of pursuing a cost leadership strategy, and e‐tailers may need to adopt alternative or integrative strategies for securing a competitive advantage.Originality/valueThe paper incorporates literature pertaining to Porter's model of generic strategies, online pricing strategies, as well as recent court cases.

Lingering Uncertainty over the Antitrust Approach to Resale Price Maintenance

This article considers the latest developments in the American and EU antitrust approach to fixed and minimum resale price maintenance and shows that although in both jurisdictions the courts and public enforcers have moved away from their hitherto rigid stance, the contrasting views at both federal and state level in the United States and between the European Commission and the German Cartel Office are creating uncertainty on the potential justifiability or otherwise of such agreements to the detriment of the business community. It concludes that in view of the lack of consensus on the degree of pro-competitive benefits of agreements fixing minimum RPM and the absence of empirical evidence of their pro-competitiveness, the best approach is the one announced by the Commission in the recently revised vertical restraints guidelines of maintaining a presumption of illegality but with a greater willingness to test this presumption against claimed efficiencies.