Tuesday, March 27, 2007

Resale Price Maintenance

The Supreme Court is examining a longstanding law in the United States banning resale price maintenance. Resale price maintenance is when a manufacturer requires a retailer to sell their products above a minimum price. An example would be if Apple required stores to sell iPods for at least $400. The practice was banned to increase competition, but there are doubts as to whether it serves its purpose.

Greg Mankiw discusses the court case and his take on the practice on his blog. Here is a NY Times article on the concept.

Do you think resale price maintenance should be allowed? Make sure you read the articles before responding to keep the discussion informed.

(Source: Greg Mankiw's Blog)


Anonymous said...

This idea of resale price maintenance doesn't seem to be a big deal. The case did show that enouch of the supreme court justices "OKed" the idea. In my opinion, I think resale price maintenance is fine. I don't think that it reduces competition. Even if competition is reduced, Greg Mankiw says that maybe there is a legitimate goal behind resale price maintenance. For example, resale price maintenance eliminates the free-rider problem. So, I don't think resale price maintenance is that bad. I think resale price maintenance should be allowed.
-Morgan Hale

Anonymous said...

I think that resale price maintenance is not a good thing because setting the price floor would lead to a surplus of goods and dead weight loss. Why not let the companies compete, which would also provide the biggest overall benefit to both consumers and producers. Although if you did allow the resale price maintenance it might even out the benefits while only creating a little dead weight loss. This would be a good thing because instead of consumers getting all of the benefit the producers would get some too.
-Chris G.

Anonymous said...

I also don’t think that resale price maintenance is a good thing because it encourages companies to stop competing when creating a product. I agree with Chris that the market should determine the price of a good not the producers. With this, a possibility of a surplus is possible if producers mis-project what they believe the market will pay for their good. You could also say that consumers are hurt in this scenario because they are not given the option of how much they want to pay for a good and are sometimes forced to buy products that companies have increased the price on to compete while the actually product is of less quality. On the other hand, I think that resale price maintenance can be a good thing because of the extra revenue the government makes when goods are sold at a higher price.

Ryan W.

Anonymous said...

I say allow the resale price maintenance. Although it may seem detrimental to the consumers at first and seemingly to provoke competition from other companies, resale maintenance has good qualities. As Morgan said it solves the free rider problem where consumers use the resale service and then go buy the product wholesale. Also if a company really wanted to be competitive and sell more of a product, they'd sell at wholesale instead of jacking up the price because they'd recieve more sales. More importantly if resale price maintenance where brought back there would be a legitimate reason. Even though there may be some dead weightloss or some inefficiency, in the long run the company may benefit from their resale.

-John Schmidt