Rendering Alternative Offerings Less Profitable with Resale Price Maintenance

Greg Shaffer

Journal of Economics & Management Strategy, 1995, vol. 3, issue 4, 639-62

Abstract: When it was legal, resale price maintenance (RPM) was commonly observed on items such as aspirin, pens, toothpaste, soap, shaving cream, and milk. In providing a theory that is based on compensating retailers for their opportunity cost of shelf space, and that does not hinge on the existence of externalities in nonprice competition, this article explains why a manufacturer might impose RPM on these and many other products. By contrast, the use of RPM on food, grocery, and drug store items is not easily explained by standard theories such as free riding on presale services and quality certification by high-priced retailers. The typical supermarket has room for fewer than 25,000 products. Yet there are some 100,000 available, and between 10,000 and 25,000 items are introduced each year. Copyright 1995 by MIT Press.

Date: 1995
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