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Resale Price Maintenance: Customer Service Without Free Riding

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  • Ingene, Charles A.
  • Parry, Mark E.
  • Xu, Zibin

Abstract

Recent judicial legalizations of resale price maintenance (RPM) allow a manufacturer to establish limits to the prices that its retailers charge: a maximum price (a ceiling) or a minimum price (a floor). A manufacturer can also choose not to apply an RPM constraint. To determine how RPM affects service levels and the distribution of profit between channel members, we derive the optimal RPM strategy for a manufacturer that sells through competing retailers who provide their own optimal level of demand-enhancing customer service. Our analysis yields four key insights into a manufacturer's use of RPM in the absence of free riding.

Suggested Citation

  • Ingene, Charles A. & Parry, Mark E. & Xu, Zibin, 2020. "Resale Price Maintenance: Customer Service Without Free Riding," Journal of Retailing, Elsevier, vol. 96(4), pages 563-577.
    • Handle: RePEc:eee:jouret:v:96:y:2020:i:4:p:563-577
    DOI: 10.1016/j.jretai.2020.05.001
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    References listed on IDEAS

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    Cited by:

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    2. Xu, Zibin & Zhu, Yi & Dutta, Shantanu, 2023. "Adverse inclusion of asymmetric advertisers in position auctions," International Journal of Research in Marketing, Elsevier, vol. 40(3), pages 724-740.

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    More about this item

    Keywords

    Resale price maintenance; Distribution channels; Pricing; Services; Game theory; Legal influences on marketing;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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