Essays on resale price maintenance and optimal retail contracts

Three essays regarding resale price maintenance (RPM) are presented. The first provides an overview of the legal treatment and economic theory of RPM. The evolution of the current standard of per se illegality is described. Economic theories of RPM are surveyed and a review of the debate over the current per se standard is presented.;The remaining two essays provide alternative models explaining the use of RPM. In the successive monopoly manufacturer-retailer model with nonstochastic demand and unobservable advertising, it is well known that the manufacturer can attain the integrated profit level, without actually integrating into the retail market, by using a two-part tariff. Under this scheme, the per unit charge is equal to the marginal cost of production. This gives the downstream firm the same pricing and promotional incentives as in the vertically integrated structure. The fixed fee is then used to extract the retailer's profits. In this setting there is no incentive for the manufacturer to directly control retail price through RPM. The second essay shows that this result is no longer valid when demand is stochastic and the retailer is risk averse. In this setting, the manufacturer will generally have an incentive to impose RPM. The form of RPM, price ceilings or price floors, depends on the balancing of pricing, promotional, and risk sharing incentives.;The last essay examines RPM in a more general framework. Joint profit maximizing contracts are derived when the retailer is privately informed about demand conditions prior to contracting with the manufacturer. The retailer can increase customer demand by supplying promotion; however, these activities are not observed by the manufacturer. Consequently, when sales are low the manufacturer does not know whether to attribute this to a decline in demand or to a lack of marketing effort. The manufacturer relies on contractual stipulations to motivate the dealer to supply promotional service. It is shown that, in general, the optimal contract exhibits some form of RPM. The type of RPM and quantity fixing (quantity rationing or quantity forcing) depends on how price and quantity affect the link between final sales and retailer service.