The competition effects of industry-wide vertical price fixing in bilateral oligopoly

This paper examines the competition and welfare effects of vertical price fixing through industry-wide resale price maintenance (RPM) arrangements, such as those benefiting from exemption from a general prohibition against RPM. A bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services. Transactions between the stages involve prices being determined through bargaining. We do not find RPM to be universally undesirable. However where retailer power is strong, the social effects of RPM are likely to be adverse, since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising.