Resale price maintenance in an oligopoly with uncertain demand"
JEL codes: L1, L4, M3
Keywords: demand uncertainty, oligopoly, RPM
Abstract: This paper considers a model where oligopolistic manufacturers sell to consumers through competitive retailers who face demand uncertainty. The setup is a symmetric duopoly with product differentiation and a perfectly competitive retail market. In the game with unconstrained price competition, there is price dispersion in the retail market. In the game with resale price maintenance (RPM), manufacturers’ profits are higher, retail inventories are at least as high, and total surplus is at least as high. The effect of RPM on consumer surplus is ambiguous. RPM also precludes possible coordination failure between the manufacturers.