Finally, we show that whether a min RPM benefits or harms consumers depends on the reason why a min RPM is implemented: if the goal is to soften competition with the substitute product, it tends to harm consumers, and if the goal is to secure service provision, it tends to benefit consumers. A natural monopoly occurs when the quantity demanded is less than the minimum quantity it takes to be at the bottom of the long-run average cost curve. We also establish a direct relation between the occurrence of min and max RPM and the direction of cost-pass through in the absence of RPM. In this market, the demand curve intersects the long-run average cost (LRAC) curve at its downward-sloping part. We show that a min RPM is chosen whenever the vertical externality associated with the retailer's additional decision variable is relatively more important for the manufacturer's sales quantity than the double-markup problem that normally occurs in a successive monopoly a max RPM is chosen if the converse holds.
#MONOPOLY ECONOMICS CONTITIONS PDF#
These decision variables can be substitute products the retailer can sell or service levels the retailer can offer for his products. Issue publication date: 11 October 2022 Downloads 2144 pdf (1. While these conditions are seldom met in the real world, many firms do have. Since a monopoly faces no significant competition, it can charge any price it. In this paper, we investigate a less-explored explanation for minimum resale price maintenance that is focused on other decision variables the retailer has at hand and that cannot be controlled by the manufacturer. A monopoly exists if a single firm produces and sells a good or service for. In the case of monopoly, one firm produces all of the output in a market. Did you ever wonder why manufacturers often seek to impose minimum retail prices on their retailers? The practice of a manufacturer enforcing retail prices is known as resale price maintenance (RPM), and this can either come in the form of a maximum retail price (max RPM) or a minimum retail price (min RPM), which is the more controversial issue in antitrust regulations.
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