Theoretical and Practical Analyzes on Resale Price Maintenance

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The phenomena of resale price maintenance are usually observed where manufacturers possess some monopolistic power. The anti-trust law prohibits this kind of conduct except certain commodities. When manufacturers exercise their monoppolistic power on retailers and/or wholesalers, they usually provide margins to them under contract. If manufacturers can assign the retail price to retailers by giving margins, then the resale price maintenance is equivalent to vertical integration. However, when retailers such as big super-marker like Daier, also have monopolistic power, there is a problem of consecutive monopoly. In the past the arguments on resale price maintenance do not fully consider the importance of location or geography. We explicitly introduce geographic distribution of the markets and investigate the behaviors of both manufacturers and super-market. We found that there exists a unique equilibrium where both super-market and retailers sponcered by manufacturers coexist. We also introduce distribution cost into our framework and derived the theoretical result that manufacturers prefer resale price maintenance to different prices in different teritories only when an increase in the size of the markets reduces their distribution cost. We picked up three industriees to test this hypothesis ; automobile industry, medicine industry, and book industry. We found thet both automobile and medicine industries have incentive to keep resale price. On the other hand, we can not reject the null hypothesis that distribution cost is independent from the market size. We sldo found that whenever manufacturers keep the resale price over different area, consumers suffer welfare loss, in the comparison in the case of free pricing in each area by retailers.