Point-of-Sale Service, Agency or Free-Rider Problems

Michael Baye (), Dan Kovenock () and Casper de Vries ()
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Michael Baye: Indiana University
Dan Kovenock: Economic Science Institute, Chapman University
Casper de Vries: Erasmus University

Working Papers from Chapman University, Economic Science Institute

Abstract: We show that MRPM can increase manufacturer profits and total output even in the ab- sence of traditional justifications based on point-of-sale services, retailer effort, or free-riding. The key insight is that MRPM mitigates channel conflict by altering how retailers balance extracting surplus from loyal customers and competing for price-sensitive shoppers. When a manufacturer optimally chooses a wholesale price and MRPM policy, this can intensify com- petition and create systematic distributional effects: prices fall for loyal consumers but rise for shoppers, and the profits of smaller, shopper-dependent retailers decline. We characterize the conditions under which MRPM raises output, benefits a majority of consumers, and reallocates surplus among the manufacturer, retailers, and different consumer segments. The model helps explain why the political economy of MRPM varies across jurisdictions: even when it increases output, it creates predictable winners and losers, and there is no guarantee that the median consumer or retailer -- or the median voter -- benefits when minimum resale prices are imposed. These results suggest that the welfare and distributional effects of MRPM are inherently context-dependent and that its legal evaluation is best approached through a rule-of-reason framework that accounts for demand structure, retailer asymmetries, and the composition of consumer types.

Keywords: Resale Price Maintenance; Vertical Restraints; Price Competition (search for similar items in EconPapers)
JEL-codes: D4 D8 L13 M3 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:25-10

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