Resale price maintenance and spatial price discrimination

In this article, we examine resale price maintenance (RPM) in a classic model of downstream retailers engaging in spatial price discrimination. We show that a resale price floor increases the total profit of the upstream monopoly when transport cost (product differentiation) is relatively low. Importantly, this profitable RPM floor can also enhance social welfare and even consumer surplus. A resale price ceiling can also be profitable and always improves consumer surplus and social welfare. We argue that such findings support a rule of reason approach to RPM. (C) 2018 Elsevier B.V. All rights reserved.