What is Resale price maintenance (RPM), and why is it anti-competitive?

An arrangement whereby an upstream firm retains the right to control the price at which a product is sold by a downstream firm by imposing a price floor or price ceiling. RPM can be anticompetitive: • Retailer collusion - RPM can facilitate collusion among retailers by eliminating the inherent instability of collusive aggreements due to the price discipline • Producer collusion – elimination of price variations among retailers facilitates collusion at the wholesale level (i.e. producers care about wholesale price and collude on that one) However, RPM is not necessarily bad due to the service hypothesis: • A fixed higher price can be justified by additional service • If retailers provide more pre-sale services, demand curve shifts outward • Assumption: Demand depends not only on price but also on (pre-sale) services, like convenient location, short waiting times, etc.