When is Minimum and Maximum RPM Competitive?: Demand Uncertainty and Retailer Competition

Kohei Kawaguchi, Jeff Qiu and Zhang Yi

No 7tcha_v1, SocArXiv from Center for Open Science

Abstract: This paper analyzes how retailer competition affects the welfare implications of resale price maintenance (RPM) under demand uncertainty. We extend the classic model of Deneckere et al. (1997) by introducing imperfect competition among retailers, which creates tension between double marginalization and business-stealing effects. Our analysis reveals four distinct regimes determined by demand uncertainty and market concentration. In highly uncertain, competitive markets, minimum RPM enhances efficiency by encouraging inventory holding. However, in markets with lower uncertainty or more concentrated retail sectors, maximum RPM better promotes competition by mitigating double marginalization. The effectiveness of each RPM type depends on whether retailers optimize for all demand states or focus primarily on high-demand scenarios. These findings suggest that antitrust authorities should evaluate RPM cases by considering both the level of demand uncertainty and the degree of retail competition, as different market conditions may call for different forms of vertical price restrictions. For managers, our results provide actionable guidance on selecting the appropriate RPM strategy based on market structure and demand predictability.

Date: 2025-09-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:7tcha_v1

DOI: 10.31219/osf.io/7tcha_v1

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