Multi-Product Retail Competition and Minimum Resale Price Maintenance

This paper examines the incentives of adopting the minimum resale price maintenance within the context of a model that incorporates inter- and intrabrand competition. When the manufacturing and retail sectors are competitive, a manufacturer would not voluntarily want to impose a minimum resale price maintenance since it would reduce the sales of the product and hence its profit, whereas a retailer with a higher price than its competitor would desire to have the minimum resale price maintenance imposed. This paper shows that a retailer with a larger market share can coerce manufacturers of less popular products into adopting minimum resale price maintenance, using it as a strategic tool for raising a rival retailer's price. The possibility of implementing such coercion depends on the extent of availability of retail shelf space and the disparity in the retailers’ market shares.